Machine A R100 000 5 years R10 000 R 34 000 27 000 32 000 30 000 26 000 Machine B R110 000 5 years 0 R 33 000 33 000 33 000 33 000 33 000 Initial cost Expected economic life Expected disposal/residual value Expected net cash inflows End of: Year 1 Year 2 Year 3 Year 4 Year 5 Depreciation per year 18 000 22 000 The company estimates that its cost of capital is 14%. 2.1 Calculate the payback period for Machine A and B (answers must be expressed in years, months and days). 2.2 Calculate the accounting rate of return (on average investment) for Machine A. (answer rounded off to 2 decimal places).
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- MACHINE A MACHINE B INITIAL COST R100 000 R110 000 EXPECTED ECONOMIC LIFE 5 YEARS 5 YEARS EXPECTED DISPOSAL/RESIDUAL VALUE R10 000 EXPECTED NET CASH INFLOWS R R END OF: YEAR 1 34 000 33 000 YEAR 2 27 000 33 000 YEAR 3 32 000 33 000 YEAR 4 30 000 33 000 YEAR 5 26 000 33 000 DEPRECIATION PER YEAR 18 000 22 000 COMPANY ESTIMATES COST CAPITAL = 14% 4)Calculate the internal rate of return for Machine B.Machine B Machine A R100 000 R110 000 Initial cost 5 years 5 years Expected economic life R10 000 0. Expected disposal/residual value R R Expected net cash inflows 34 000 33 000 End of: Year 1 27 000 33 000 Year 2 Year 3 32 000 33 000 Year 4 30 000 33 000 Year 5 26 000 33 000 Depreciation per year 18 000 22 000 The company estimates that its cost of capital is 14%. Calculate the payback period for Machine A and B (answers must be expressed in years, moi and days). 2.1 2.2 Calculate the accounting rate of return (on average investment) for Machine A. (answer roundec to 2 decimal places).A4 9a We find the following information on NPNG (No-Pain-No-Gain) Inc.: A4 9a EBIT = $2,000,000Depreciation = $250,000Change in net working capital = $100,000Net capital spending = $300,000 These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future: EBIT: 20%Depreciation: 10%Change in net working capital: 15%Net capital spending: 10% The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $8,000,000 in debt. We have estimated the WACC to be 15%. a. Calculate the EBIT, Depreciation, Changes in NWC, and net capital spending for the next four years.
- A4 9c We find the following information on NPNG (No-Pain-No-Gain) Inc.: EBIT = $2,000,000Depreciation = $250,000Change in net working capital = $100,000Net capital spending = $300,000 These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future: EBIT: 20%Depreciation: 10%Change in net working capital: 15%Net capital spending: 10% The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $8,000,000 in debt. We have estimated the WACC to be 15%. c. Calculate the firm’s share price at time 0.What is the project's MIRR? r = 10.00% 0 Year Cash flows O a. 22.51% O b. 11.75% O c. 17.21% O d. 14.81% O e. 15.65% -$875 1 $300 2 $320 3 $340 $360A B C D E F G H 1 Create a income statement and show net cashflow each year for the 4 years so you can use it for what-if analysis. 2 3 Base case Inputs: 4 5 6 4-year life of the project $26/unit Sales price of product 7 $13/unit Cost to produce the product 8 $1450/year operating costs 9 1250 units First-year production 16% Increase in production each year 1012345167819202123 24 25 26 14 Answer the following question for "what if analysis" 16 What is the IRR for the Base case? 17 $32,000 Initial investment depreciated with MACRS 3 year recovery 28% tax rate What is the IRR if the volume produced does not increase by 16%/year, but only increased 10%/yr.? What is the IRR if the sales price is only $24/unit? What is the IRR if the tax rate increases to 49%? 20 What is the IRR if the initial investment is $39,000? 18 19 22 Which analysis should your company be most concerned about? I J k
- Data Review View Acrob Page Layout P19 F G D A Using the information provided in the following table, find the value of each asset. Cash Flow End of Amount Asset Year (Php) Appropriate Required Return (%) A 250,000 18 250,000 250,000 15,000 15 0 16 0 0 1,750,000 75,000 12 425,000 100,000 14 150,000 250,000 350,000 200,000 50.000 File dy B C F Home O 1 through 1 2 3 14 5 1 through 5 6 E 1 2 3 4 5 6 Solution and Answer: 123 Insert Shot on OnePlus Powered by Triple Camera Num Ette FormulasPROBLEM # 2 Consider the following cash flow of a company: Year Cash flow -600 10 -5000 11-40 1000 a) Compute the IRR for this table b) At MARR 15% determine the acceptability of each project.Cost of plant R3 600 000Import duty R 900 000Installation cost R 300 000Net cash flows Year 1-10 R1 400 000 per annum (excluding residual value)Residual/scrap value R1 200 000The company uses straight-line depreciation. The cost of capital for projects of similar risk is 18%. 2.1 Calculate the investment’s Accounting Rate of Return (ARR). Briefly explain if the ARR is acceptable or not based on a target rate of return of 40%. Assume a payback period of 4 years. Determine the payback period and state if the investment isacceptable or not. Calculate and comment on the viability of the proposed investment based on the net present value(NPV) method. Discuss whether the advantages of using the NPV method outweigh the disadvantages
- Assume a $290,000 investment and the following cash flows for two products: Year Product X 1 A234 4 $ 100,000 100,000 75,000 40,000 Product Y $ 90,000 100,000 Product X Product Y 80,000 40,000 a. Calculate the payback for products X and Y. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. years years b. Which alternative would you select under the payback method? Product X is selected O Product Y is selectedF Question Viewer Cost of Goods Sold - Depreciation = EBIT - Taxes (20%). = Unlevered net income + Depreciation - Additions to Net Working Capital - Capital Expenditures = Free Cash Flow Year 0 A. 17% B. 30% C. 25% D. 22% _-400000_ Year 1 424897.541 - 165000 - 85000 174897.541 - 34979.508 139918.033 85000 - 20000 Year 2 424897.541 - 165000 - 85000 174897.541 - 34979.508 139918.033 85000 - 20000 Year 3 424897.541 - 165000 - 85000 174897.541 - 34979.508 139918.033 85000 - 20000 204918.033 204918.033 204918.033 Visby Rides, a livery car company, is considering buying some new luxury cars. After extensive research, they come up with the above estimates of free cash flow from this project. By how much could the discount rate rise before the net present value (NPV) of this project is zero, given that it is currently 8%?Income from Net Cash Year Operations Flow $100,000 $180,000 2 40,000 120,000 40,000 100,000 10,000 90,000 10,000 120,000 The net present value for this investment is 4, 5.