Compute the net present value of the project based on the original projections. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 5,275.) Net present value $ Should the project be accepted? The project should be rejected accepted
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- Here, we want to work through a proforma income statement to determine the cash flows from the project. Below are some estimates that the marketing department has determined. Other assumptions necessary for completing the proforma income statement can be found by looking at some of the historical average values in Johnson & Johnson’s financial statements. Suppose Johnson & Johnson (ticker symbol - jnj) has decided to introduce a new heart stent, the Heart Flow. Before they launched the Heart Flow, they analyzed it to see if it would be a desirable investment. The company estimated that it would sell 950,000 Heart Flow’s per year at a price of $75,000 for the next six years. After the first year of sales, the quantity sold will increase by 2% per year for the remaining life of the project.The initial capital outlay is determined to be $15 billion and a $2.0 billion outlay in net working capital (NWC) would also be required. Assume that there is a one-time investment in…The production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine which one has the best cash payback. Machine A Machine B Machine C Annual cash flow $40,000 $50,000 $75,000 Average investment 300,000 250,000 500,000 a.Machine A b.Machine C c.Machine B d.Machines B and C have the same preferred payback period.For following problem, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. A new air conditioning system is to be installed in an office building. Purchasing and installing the system costs $100,000 and the company expects to save $50,000 every year on electricity bills. The company’s MARR is 10% per year, maintenance costs are worked out to be $10,000 per year and the system’s market value will be $20,000 at the end of 10 years. Use the FW method to determine whether the system should be installed.
- A firm is considering the purchase of a new machine to increase the output of an existing production process. Of all the machines considered, management has narrowed the field to the machines represented by the following cash flows: Machine Initial cost of machine ($) Annual cash flow from machine ($/year) A 6,500 B 17,000 2,000 3,000 Machine A has a service life of 5 years whereas Machine B has a service life of 10 years. The MARR (minimum acceptable rate of return) is 10%. The values of the net present worth (NPW) of Machine A and Machine B are, respectively: Select one: O $1,190 and $1,639 O $1,082 and $1,434 O $945 and $1,050 O $1,012 and $1,237The Pan American Bottling Company is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $72,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow 1 $ 35,000 2 38,000 3 35,000 4 28,000 5 12,000 If the cost of capital is 12 percent, what is the net present value of selecting a new machine? Note: Do not round intermediate calculations and round your final answer to 2 decimal places. What is the internal rate of return? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Should the project be accepted? multiple choice Yes NoGood shoes Limited is a company that deals with production of leather shoes. The manufacturing division manager has proposed the purchase of machine A or B to enhance the production capacity. The machines are mutually exclusive. Machine A costs 30 million while Machine B costs 55 million. The expected cash flows from each of the machines for 3 years are provided below. Year 1 2 3 Machine A 15 million 18 million 20 million Machine B 13 million 17 million 19 million Required:Using NPV technique, advice the manufacturing manager on the best machine to purchase assuming that the cost of capital is 10%
- Arcmat plc owns a factory which at present is empty. Mrs X, a business strategist, has been working on a proposal for using the factory for doll manufacture. This will require complete modernisation. Mrs X is a little confused about project appraisal and has asked your advice about which of the following are relevant and incremental cash flows. 1) The future cost of modernising the factory.2) The $100,000 spent two months ago on a market survey investigating the demand for these plastic dolls.3) Machines to produce the dolls – cost $10m payable on delivery.4) Depreciation on the machines.5) Arcmat’s other product lines are expected to be more popular due to the complementary nature of the new doll range with these existing products – the net cash flow effect is anticipated at $1m. 6) Three senior managers will be drafted in from other divisions for a period of a year. 7) A proportion of the US head office costs. 8) The tax saving due to the plant investment being offset against…For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. Company E is considering installing Valutemp temperature loggers in all of its refrigerated trucks for monitoring temperatures during transit. If the systems will reduce insurance claims by $500,000 in each of the next 5 years, how much should the company be willing to spend now if it uses an interest rate of 10% per year?The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $490,000. The estimated net cash flows from each project are as follows: Net Cash Flows Year Office Expansion Servers 1 $125,000 $165,000 2 125,000 165,000 3 125,000 165,000 4 125,000 165,000 5 125,000 6 125,000 The committee has selected a rate of 12% for purposes of net present value analysis. It also estimates that the residual value at the end of each project's useful life is $0, but at the end of the fourth year, the office expansion's residual value would be $180,000. 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…
- Your answer is incorrect. The Management of Sandhill Manufacturing Company is evaluating two forklift systems to use in its plant that produces the towers for a windmill power farm. The costs and the cash flows from these systems are shown below. The company uses a 9 percent discount rate for all projects. Otis Forklifts Craigmore Forklifts Otis forklift Craigmore Forklifts Otis forklift Year 0 Craigmore Forklifts $-3,110,450 $-4,138,410 NPV $551,814 $350,223 Year 1 IRR $964,225 $1,352,886 $861,236 $1,748,225 Compute the IRR for each of the two systems. (Round intermediate calculation to O decimal places, e.g. 1,525 and final answers to 2 decimal places, e.g. 15.10%.) Year 2 % % Year 3 $2,122,497 $2,884,110Warm and Dry is considering adding a new line of winter footwear to its product lineup. Which of the following are relevant cash flows for this project?I. Decreased revenue from products currently being offered if this new footwear is added to the lineupII. Revenue from the new line of footwearIII. Money spent to date looking for a new product line to add to the store's offeringsIV. Cost of new counters to display the new line of footwear a) I and IV only b) II and IV only c) II and III only d) I, II, and IV only e) II, III, and IV onlyThe Chihiro Co. is considering two investments to move materials and supplies around its factory: 1) a conveyor belt system; and 2) a fleet of forklift trucks. The initial costs of each approach today, and the future annual cash operating costs for each investment for the following five years (the estimated useful life of each investment, after which they will be worth nothing), are as follows (hint: all of these numbers represent costs, i.e., cash outlays): Assume the appropriate required rate of return to use in analyzing these cash flows = 10%. TIME 0 1 2 3 4 ANNUAL COST, CONVEYER $500,000 $120,000 $120,000 $120,000 $120,000 $20,000 ANNUAL COST, FORKLIFTS $200,000 $160,000 $160,000 $160,000 $160,000 $160,000 A) What is the IRR of each alternative? Hint: what are the signs of each of the cash flows? B) What is your recommendation for the best investment for the company? Why?