You are evaluating purchasing the rights to a project that will generate after tax expected cash...

You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $84k at the end of each of the next five years, plus an additional $1,000k at the end of the fifth year as the final cash flow. You can purchase this project for $586k. If your firm's cost of capital (aka required rate of return) is 13.9%, what is the NPV of this project? Provide your answer in units of $1000, thus, $15000 = 15k and thus you should enter 15 for your answer.

Expert Solution

COST OF THE PROJECT IS $586000

STATEMENT OF PRESENT VALUE OF INFLOWS


YEARS		INFLOWS	ADDITIONAL INFLOWS	TOTAL INFLOWS	PV FACTOR	PV
							(@13.9%)	(TOTAL INFLOWS*PVF)

1		84,000.00	-		84,000.00		0.88	73,752.00
2		84,000.00	-		84,000.00		0.77	64,680.00
3		84,000.00	-		84,000.00		0.68	57,120.00
4		84,000.00	-		84,000.00		0.59	49,560.00
5		84,000.00	1,000,000.00		1,084,000.00		0.52	563,680.00

						TOTAL PV OF INFLOWS	808,792.00



	NPV OF THE PROJECT = PV OF CASH INFLOWS - PROJECT COST
		NPV =	808792-586000
		NPV =	222792


	ANSWER IN UNITS OF $1000 IS $ 222.792

jeff jeffy answered 1 year ago

Evaluating a capital budgeting project that costs $40,000 that is expected to generate after-tax cash flows...

Evaluating a capital budgeting project that costs $40,000 that is expected to generate after-tax cash flows of $15,000 per year for three years. If the required rate of return is 10 percent calculate the project’s (a) NPV and (b) IRR. Should the project be purchased? This is for a review Please show steps and rationale for project purchase.

A project requires an investment of 10500 today and it is expected to generate after-tax cash...

A project requires an investment of 10500 today and it is expected to generate after-tax cash flows of 2,500 per year for the next 6 years. The company’s weighted average cost of capital is 12.2% per year. What is the projects net present value?

AS is evaluating a project that is expected to generate the following cash flow stream: Expected...

AS is evaluating a project that is expected to generate the following cash flow stream: Expected Cash Flow Now -R 100,000 End-of-year 1 R 50,000 End-of-year 2 R 50,000 End-of-year 3 R 50,000 Required: 2.1. If the project’s cost of capital is 12 per cent, what is the present value of the project’s expected cash flow stream? 2.2. What is the net present value of the project?

Lotus Company is considering an investment project that is expected to generate after tax cash flows...

Lotus Company is considering an investment project that is expected to generate after tax cash flows $500 for the first year, $500 for the second year, $800 for the third year, and $800 for the fourth year. The initial investment is $1400. The firm has a cost of capital of 15%. (Keep your answer to only two decimals) a. What is the payback period for the investment ? (example of answer format: 15.42 years, or 15.42) b. What is the...

11. You are evaluating a proposed project for your company. The project is expected to generate...

11. You are evaluating a proposed project for your company. The project is expected to generate the following end-of-year cash flows: You have been told you should evaluate this project with an interest rate of 8.00%. A) What is the NPV? B) what is the Internal Rate of Return (IRR) C) Based on the information above: Your group leader has now told you that the risk of the project was understated before. As a result, she tells you to recalculate...

11. You are evaluating a proposed project for your company. The project is expected to generate...

11. You are evaluating a proposed project for your company. The project is expected to generate the following end-of-year cash flows: Please solve for below cash flows: 0------- -$3000 1--------- $300 2----------$300 3---------- $600 4---------- $600 5----------- $800 6----------- $800 7------------$800 8----------- $700 You have been told you should evaluate this project with an interest rate of 8.00%. A) What is the NPV? B) what is the Internal Rate of Return (IRR) C) Based on the information above: Your group...

You are evaluating a project that will cost $497,000, but is expected to produce cash flows...

You are evaluating a project that will cost $497,000, but is expected to produce cash flows of $123,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11.2% and your company's preferred payback period is three years or less. a. What is the payback period of this project? b. Should you take the project if you want to increase the value of the company? a. What is the payback period of...

You are evaluating an investment project costing $43,000 initially. The project will provide $3,000 in after-tax...

You are evaluating an investment project costing $43,000 initially. The project will provide $3,000 in after-tax cash flows in the first year, $4,000 in the second year and $9,000 each year thereafter for 10 years. The maximum payback period for your company is 7 years. Attempt 1/1 for 10 pts. Part 1 What is the payback period for this project?

1 A project has an initial cost of $ 320,000, expected after-tax cash inflows of $...

1 A project has an initial cost of $ 320,000, expected after-tax cash inflows of $ 75,000 per year for 8 years, a net salvage value of $ 30,000, and a cost of capital of 11%. a) What is the project's net present value? b) What is the project's profitability index? c) What is the project's internal rate of return? d) What is the project's modified internal rate of return (assume the investment rate to be equal to the cost...

You are evaluating a project with the following cash flows: initial investment is $-23, and the expected...

You are evaluating a project with the following cash flows: initial investment is $-23, and the expected cash flows for years 1 - 3 are $12, $9 and $8 (all cash flows are in millions of dollars). What is this projects NPV? The company's WACC is 9%. Express your answer in millions of dollars, rounded to 2 decimals and without the dollar sign. So, if your answer is 23.5678, just enter 23.57.

Question

You are evaluating purchasing the rights to a project that will generate after tax expected cash...

Solutions

Expert Solution

Related Solutions

Evaluating a capital budgeting project that costs $40,000 that is expected to generate after-tax cash flows...

A project requires an investment of 10500 today and it is expected to generate after-tax cash...

AS is evaluating a project that is expected to generate the following cash flow stream: Expected...

Lotus Company is considering an investment project that is expected to generate after tax cash flows...

11. You are evaluating a proposed project for your company. The project is expected to generate...

11. You are evaluating a proposed project for your company. The project is expected to generate...

You are evaluating a project that will cost $497,000, but is expected to produce cash flows...

You are evaluating an investment project costing $43,000 initially. The project will provide $3,000 in after-tax...

1 A project has an initial cost of $ 320,000, expected after-tax cash inflows of $...

You are evaluating a project with the following cash flows: initial investment is $-23, and the expected...