Castle View Games would like to invest in a division to develop software for a soon-to-be-released video game console. To evaluate this decision, the firm first attempts to project the working capital needs for this operation. Its chief financial officer has developed the following estimates (in millions of dollars): - Assuming that Castle View currently does not have any working capital invested in this division, calculate the cash flows associated with changes in net working capital for the first five years of this investment. (Note: Enter decreases as negative numbers.) The increase in net working capital for year 1 is $ million. (Round to the nearest integer. Enter increases as negative numbers and decreases as positive numbers.) The increase in net working capital for year 2 is 5million. (Round to the nearest integer. Enter increases as negative numbers and decreases as positive numbers.) The increase in net working capital for year 3 is $ million. (Round to the nearest integer. Enter increases as negative numbers and decreases as positive numbers.) The increase in net working capital for year 4 is $million. (Round to the nearest integer. Enter increases as negative numbers and decreases as positive numbers.) The increase in net working capital for year 5 is $million. (Round to the nearest integer. Enter increases as negative numbers and decreases as positive numbers.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) 1 Year 1 2 3 4 5 2 Cash 6 10 14 14 15 3 Accounts Receivable 21 22 24 23 25 4 Inventory 4 8 10 12 13 Accounts Payable 18 20 25 29 35 Print Done

After analysing the financial data of Q-Constructions, you notice that they are trending in the right direction. A new 12-month construction proposal has come to the company worth $1,000,000 and an important question is whether it will be financially viable. They want you to analyse the proposal, in particular, the recommended cash flow schedule and to understand the key financial points during the construction project. The following cash flow schedule is summarised below.   To ensure that all upfront and on-going outlay costs are covered in advance, Q-Constructions incur an initial start-up cost of $200,000. The proposal states that they will receive a deposit from the client of 10% of the total project cost at the beginning. They then receive four equal instalment payments of 20% of the total project cost associated to project milestones from the client at the end of the 2nd, 6th, 8th and 10th month. Finally, they receive the last 10% project milestone on lock-up which occurs at the…

A sports nutrition company is examining whether a new high-performance sports drink should be added to its product line. A preliminary feasibility analysis indicated that the company would need to invest $1 7.5 million in a new manufacturing facility to produce and package the product. A financial analysis using sales and cost data supplied by marketing and production personnel indicated that the net cash flow (cash inflows minus cash outflows) would be $6.1 million in the first year of commercialization, $7.4 million in year 2, $7 .0 million in year 3, and $ 5. 5 million in year 4. Senior company executives were undecided whether to move forward with the development of the new product. They requested that a discounted cash flow analysis be performed using two different discount rates: 20 percent and 15 percent. a. Should the company proceed with development of the product if the discount rate is 20 percent? Why? b. Does the decision to proceed with development of the…

You are an economic and financial advisor of company Express S. A. This company asks you to construct a cash flow and determine financial indicators necessary to make a decision on a business idea and thus to know whether an investment project is profitable. Following steps are suggested: Step 1. Carefully read following background information: Investment project needs $356,000 in machinery and $40,000 in working capital. Investor has equity capital, which is currently invested with a return of 12% per annum, and also has possibility of obtaining credit. Machinery is estimated to have a useful life of 3 years with a scrap value of $12,000 and working capital is 40% recoverable, both at the end of last period. Direct manufacturing costs will be as follows: - Labour: $264,000 - Raw materials: $132,000 - Other costs: $28,000 - Patents: $14,000 Debt is payable at the end of each of three (3) years with annual interest payments and can be amortized annually in any amount desired. Law…

Using a time line The financial manager at Starbuck Industries is considering an investment that requires an initial outlay of $22,000 and is expected to produce cash inflows of $1,000 at the end of year 1, $7,000 at the end of years 2 and 3, $12,000 at the end of year 4, $8,000 at the end of year 5, and $7,000 at the end of year 6. a. Select the time line option that represents the cash flows associated with Starbuck Industries' proposed investment. b. Which of the approaches-future value or present value-do financial managers rely on most often for decision making? Why? a. Which of the following time lines correctly represents the cash flows associated with Starbuck Industries' proposed investment? (Select the best answer below.) OA. $22,000 - $1,000 $7,000 $7,000-$12,000 - $8,000 - $7,000 + 5 0 3 4 6 O B. $22,000 $1,000 $7,000 $7,000 $12,000 $8,000 $7,000 + + 2 5 0 O C. $7,000 0 1 0 1 $8,000 $12,000 $7,000 $7,000 $1,000 $22,000 + + 2 3 4 5 O D. - $22,000 $1,000 $7,000 $7,000 $12,000…

K Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.98 million. The product is expected to generate profits of $1.09 million per year for 10 years. The company will have to provide product support expected to cost $98,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 5.6%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.5%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment? a. What is the NPV of this investment if the cost of capital is 5.6%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.5%, respectively. If the cost of capital is 5.6%, the NPV will be $ (Round to the nearest dollar.) Should the firm undertake the project? (Select the best choice…

Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project?   Group of answer choices Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost. The company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project. The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year. The new project is expected to reduce sales of one of the company's existing products by 5%. The company has spent and expensed $1 million on R&D associated with the new project.

The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: A. What is the payback period of this uneven cash flow? B. Does your answer change if year 10s cash inflow changes to $500,000?

The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?

Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?