Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,600, has a five-year life, and has no residual value after five years. The company's cost of capital is 10.99%. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV across the three scenarios. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Expected cash inflows Year Pessimistic Most likely Optimistic 1 $6,720 $9,320 $11,750 7,310 10,320 13,270 3 8,730 11,680 15,830 4 7,850 10,720 12,780 5 5,840 7,730 8,820 For the pessimistic scenario, the NPV is $ ☐ (Round to the nearest cent.)

Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,600, has a five-year life, and has no residual value after five years. The company's cost of capital is 10.99%. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV across the three scenarios. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Expected cash inflows Year Pessimistic Most likely Optimistic 1 $6,720 $9,320 $11,750 7,310 10,320 13,270 3 8,730 11,680 15,830 4 7,850 10,720 12,780 5 5,840 7,730 8,820 For the pessimistic scenario, the NPV is $ ☐ (Round to the nearest cent.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Omega's expected future cash flows. To answer this question, Cold Goose's CFO has asked that you compute the project's payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. Note: Round the conventional payback period to two decimal places. Year 0 Year 1 Year 2 Year 3 4,000,000 $1,600,000 $3,400,000 Expected cash flow $1,400,000 Cumulative cash flow Conventional payback period: The conventional payback period ignores the time value of money, and this concerns Cold Goose's CFO. He has now asked you to compute Omega's discounted payback period, assuming the company has a 10% cost of capital. Complete the following…
Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta's expected future cash flows. To answer this question, Cold Goose's CFO has asked that you compute the project's payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Expected cash flow Cumulative cash flow Conventional payback period: Cash flow $ Discounted cash flow $ Cumulative discounted cash flow $ Discounted payback period: Year 0 -$6,000,000 O The discounted payback period O The regular payback period O $1,714,226 $3,957,217 years The conventional payback period…
Beyer Company is considering buying an asset for $350,000. It is expected to produce the following net cash flows. Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places.)
Snyder Company is considering purchasing equipment. The equipment will produce the following cash inflows: Year 1, $25,000; Year 2, $30,000; and Year 3, $40,000. Snyder requires a minimum rate of return of 11%.What is the maximum price Snyder should pay for this equipment? Please show how to do it using financial calculator. THnaks.
Sheridan Company is considering a long-term investment project called ZIP. ZIP will require an investment of $134,000. It will have a useful life of four years and no salvage value. Annual cash inflows would increase by $79,000, and annual cash outflows would increase by $38,000. In addition, the company's required rate of return is 9%. Click here to view the factor table. (a) Calculate the net present value on this project. (If the answer is negative, use either a negative sign preceding the number e.g. -5,275 or parentheses e.g. (5,275). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answer to O decimal places, e.g. 5,275.) Net present value $ Identify whether the project should be accepted or rejected. The project should be (b) Calculate the internal rate of return on this project. (Round answer to 1 decimal place, e.g. 5.2%) Internal rate of return % Identify whether the project should be accepted or rejected. The…
Bramble Company is considering purchasing equipment. The equipment will produce the following cash inflows: Year 1.35,000; Year 2,40,000; and Year 3, $50,000. Bramble requires a minimum rate of return of 10%. What is the maximum price Bramble should pay for this equipment? (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (Round answer to 2 decimal places, e.g. 5,275.50.) To determine the present value of the future cash flows, discount the future cash flows at 10%, using Table 3. Click here to view the factor table. Year 1 Year 2 Year 3 Present value of future cash flows $
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. a. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $2,950,000 and will last 10 years. b. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $280,000. She estimates that the return from owning her own shop will be $45,000 per year. She estimates that the shop will have a useful life of 6 years. c. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a…
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The Basalt Corporation is considering a new venture. Management has made the following cash flow estimates for the project over the next three years under assumptions reflecting best, worst, and most likely scenarios in each year. The expected initial outlay (C0) is $1,000, and the cost of capital is 12%. The following probability distribution for best, worst and most likely conditions is constant from year to year: Worst case - C1 = $200 C2 = $300 C3 = $400 Most likely - C1 = $300 C2 = $400 C3 = $500 Best Case - C1 = $400 C2 = $500 C3 = $600 Best case 25% Most likely case 50% Worst case 25% Calculate the NPVs of the overall best, most likely, and worst case scenarios and the probability of each.
FB Company is considering investing in two construction projects, and he developed the following estimates of the cash flows. His required return is 10% and views these projects as equally risky. Required: a) Calculate the net present value (NPV) of each project, assess its acceptability, and indicate which project is best using NPV. b) Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI. c) If both the projects have recorded a positive NPV value and the projects are mutually exclusive, which projects would you recommend for FB Company to undertake? Why?
1) XYZ Company is considering investing in a project that requires an initial investment of $200,000 for some machinery. There will be net inflows of $50,000 for the first two years, $35,000 in years three and four, and $50,000 in year five. Find the accounting rate of return for the machine. 3) A project requires an initial investment of $200,000 and is expected to generate the following net cash inflows: PROJECT A Year 1:60,000 Year 2:60,000 Year 3:80,000 Year 4:30,000 Year 5:30,000 Required: Compute the Pay back Period if the minimum desired rate of return is 10%. PVIF .909, .826, .751, .680, .623
Malkind Hardware is adding a new product line that will require an investment of $1,476,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $330,000 the first year, $290,000 the second year, and $250,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places. ... Select the formula, then enter the amounts to calculate the ARR (accounting rate of return) for the new product line. (Round ARR to the nearest hundredth percent [two decimal places], X.XX%.) = 11 ARR %

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