of equipment have an initial investment of $728,831. The net cash flows estimated for the two proposals are asfollows:Net Cash FlowNet Cash FlowYearDiamond Core DrillHydraulic Excavator1$233,000$291,00023 4569207,000270,000207,000249,000165,000256,000126,00078105,00091,00091,000The estimated residual value of the diamond core drill at the end of Year 4 is $290,000.Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.8332-0.8900.8260.7970.7560.69430.8400.7510.7120.6580.579745 650.7920.6830.6360.5720.4820.7470.6210.5670.4970.4020.7050.5640.5070.4320.3350.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Determine which equipment should be favored, comparing the net present values of the two proposals andassuming a minimum rate of return of 12%. Use the present value table appearing above.Diamond Core Drill Hydraulic Excavator$Present value of net cash flow total$Amount to be investedNet present value

First, we need to calculate the present value of net cash flows for both the Diamond Core Drill and…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $790,000. The net cash flows estimated for the two proposals are as follows: Year Net Cash FlowDiamond Core Drill Net Cash FlowHydraulic Excavator 1 $316,000 $348,000 2 259,000 319,000 3 259,000 315,000 4 269,000 317,000 5 173,000 6 132,000 7 144,000 8 144,000 The estimated residual value of the diamond core drill at the end of Year 4 is $290,000. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 6%. If required, round to the nearest dollar. Line Item Description Diamond Core Drill Hydraulic Excavator Net present…
Military Jargon Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: ProjectName Bravo Tango Uniform Victor Investment $880,008 Investment $2,770,865 Investment $1,566,680 Investment $918,346 Year Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows Income fromOperations Net Cash Flows 1 $96,000 $240,000 $294,500 $950,000 $176,000 $400,000 $108,000 $380,000 2 96,500 240,000 294,775 950,000 176,000 400,000 108,000 380,000 3 97,000 240,000 295,050 950,000 176,000 400,000 108,000 380,000 4 97,500 240,000 295,325 950,000 176,000 400,000 108,000 380,000 5 98,000 240,000 295,600 950,000 176,000 400,000 108,000 380,000 Total $485,000 $1,200,000 $1,475,250 $4,750,000 $880,000 $2,000,000 $540,000 $1,900,000 Present Value of $1 at…
Cullumber Corp. management is evaluating two independent projects. The costs and expected cash flows are given in the following table. The cost of capital is 9.75 percent. Year 0 1 2 3 4 5 A - $339,547 129,300 129,300 129,300 129,300 129,300 B - $411,808 The NPV of project A is $ The IRR of Project A is 168,190 142,830 179,500 128,800 a. Calculate the projects' NPV. (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g. 1,525.) 119,800 and project B is $ b. Calculate the projects' IRR. (Round answer to 2 decimal places, e.g. 15.25%.) % and Project B is %.
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Project Number 1 2 3 4 Investment required $ (270,000) $ (450,000) S (360,000) $ (480,000) Present value of cash inflows 336, 140 522,970 433, 400 567, 270 Net present value $ 66, 140 $ 72,970 $ 73,400 $ 87,270 Life of the project 6 years 3 years 12 years 6 years Internal rate of return 18% 19% 14% 16% The net present values above have been computed using a 10% discount rate. Limited funds are available for investment, so the company can't accept all of the available projects. Required: Compute the profitability index for each investment project. Rank the four projects according to preference, in terms of net present value, profitability index, and internal rate of return.
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Project Number 1 2 3 4 Investment required $ (270,000) $ (450,000) $ (360,000) $ (480,000) Present value of cash inflows 336,140 522,970 433,400 567,270 Net present value $ 66,140 $ 72,970 $ 73,400 $ 87,270 Life of the project 6 years 3 years 12 years 6 years Internal rate of return 18% 19% 14% 16% The net present values above have been computed using a 10% discount rate. Limited funds are available for investment, so the company can’t accept all of the available projects. Required: I need help finding the profitability index for each investment project. Rank the four projects according to preference, in terms of net present value, profitability index, and internal rate of return.
ital investment committee of Iguana Inc. is considering two capital investments. The estimated ig income and net cash flows from each investment are as follows: Year Robotic Assembler ng Income Robotic Assembler Net Cash Flow Warehouse Operating Income Warehouse Net Cash 35,000 $65,000 $21,000 $ 25,000 55,000 21,000 51,000 3 20,000 50,000 21,000 51,000 4 15,000 45,000 21,000 51,000 5 10,000 40,000 21,000 51,000 05,000 $255,000 $105,000 $255,000 Each project requires an investment of $150,000. Straight-line ation will be used, and no residual value is expected. The committee has selected a rate of 12% for s of the net present value analysis. Present Value of $1 at Compound Interest Year 12% 15% 20% 10.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.68: d: 1a. Compute the average rate of return for each investment. If required, round your answer to one place. Investment Committee Average Rate of Return Robotic Assembler % Warehouse %…
(Calculating IRR and NPV) (Related to Checkpoint 11.1 on page 367 and Checkpoint 11.4 on page 376) The cash flows for three independent projects are as follows: Year Project A Project B Project C O (initial investment) $(50,000) $ 10,000 $(100,000) $(450,000) $ 25,000 $ 200,000 1 2 15,000 25,000 200,000 3 20,000 25,000 200,000 4 25,000 25,000 5 30,000 25,000 a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 10 percent, which project or projects would you want to undertake? c. What is the NPV of each of the projects where the appropriate discount rate is 10 percent? 20 percent?
Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: MaintenanceEquipment RampFacilities ComputerNetwork Amount to be invested $923,468 $584,381 $269,896 Annual net cash flows: Year 1 400,000 292,000 168,000 Year 2 372,000 263,000 116,000 Year 3 340,000 234,000 84,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 12%, prepare a net present value analysis for each proposal. Use…
Cullumber Corp. management is evaluating two independent projects. The costs and expected cash flows are given in the following table. The cost of capital is 13.73 percent. Year 0 1 2 3 4 5 Project A - $287,839 109,300 109,300 109,300 109,300 109,300 Project B - $401,058 The NPV of project A is $ There is The IRR of Project A is a. Calculate the projects' NPV. (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) 138,190 Cullumber should choose 162,830 b. Calculate the projects' IRR. (Round answer to 2 decimal places, e.g. 15.25%.) Cullumber should choose 179,500 118,800 119,800 c. Which project should be chosen based on NPV? Based on IRR? Is there a conflict? and project B is $ % and Project B is will be accepted. ◆ based on NPV. based on IRR. between the NPV and IRR decisions. d. If you are the decision maker for the firm, which project or projects will be…
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Project InvestmentRequired PresentValue of Cash Inflows Life oftheProject(years) InternalRateof Return A $ 160,000 $ 259,323 7 16 % B $ 135,000 $ 232,000 12 18 % C $ 100,000 $ 190,035 7 22 % D $ 164,000 $ 268,136 3 17 % The net present values should be computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth. Required: 1. Compute the profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return.
PharmPic is considering the following project with the following cash flows: PharmPic Project Period Cash Flow 0 -$50,000 1 -$7,000 2 -$40,000 3 $10,000 4 $5,000 5 $20,000 6 $25,000 7 $32,000 8 $37,000 DosageDoc is considering the following project with the following cash flows: DosageDoc Project Period Cash Flow 0 -$50,000 1 70,000 2 -40,000 3 30,000 4 -7,000 PharmPic Project’s cash flows are semi-annually. PharmPic has the following two financing choices; loan with an APR of 6.5% compounding semi-annually or a loan with an APR of…
The following information is provided by Doppler Systems: Project A Project B Project C Project D Initial investment $440,000 $202,000 $550,000 $506,000 PV of cash inflows $570,000 $394,000 $816,000 $406,000 Payback period (years) 3.6 3.2 4.0 20 NPV of project $130,000 $192,000 $266,000 $100,000 Calculate the profitability index for Project A. (Round your answer to two decimal places.) 1.09 1.67 0.85 1.30

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