Sensitivity analysis: Boulder Creek Industries Boulder Creek Industries is considering an investment in equipment based on the following estimates: Cost of equipment $3,000,000 Residual value 200,000 Useful life 10 years a. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $800,000. Use the present value tables appearing in Exhibit 2 and 5 of this chapter. Net present val ue $ b. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $400,000, $600,000, and $800,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value. Annual Net Cash Flow $800,000 $400,000 $600,000 Net present value C. Determine the net present value of the equipment, assuming a desired rate of return of 15% and annual net cash flows of $400,000, $600,000, and $800,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value. $800,000 Annual Net Cash Flow $400,000 $600,000 Net present value d. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 12%. Round to the nearest dollar. Annual Net Cash Flow $ e. Boulder Creek industries wish to invest in an eauipment and the proiections for the same is as follows: Net cash inflow $400,000 $600,000 $800,000 Net present value ($675,600) $454,400 $1,584,400 Based on the above information, when Boulder Creek industries accepts the project? (a) If the net cash flow is $600,000 (b) If the net cash flow is $800,000 (c) If the net cash flow is $400,000 (d) Both $600,000 and $800,000 net cash flow. Boulder creek industries wish to make a new investment in the equipment. Identify the statement that related to the investment decision. (a) The net present value should be positive for the investment. (b) Rate of return and its relationship to the net present value. (c) Net cash inflows out of the investment. (d) All the above

Required information A company that manufactures magnetic flow meters expects to undertake a project that will have the cash flows estimated. First cost, $ Equipment replacement cost in year 2, $ Annual operating cost, $/year Salvage value, $ Life, years -880,000 -300,000 -930,000 250,000 14 At an interest rate of 10% per year, what is the equivalent annual cost of the project? Find the AW value using tabulated factors The equivalent annual cost of the project is $- 980,731.95

The following data are accumulated by Lone Star Security in evaluating two competing investment proposals. Category Surveillance Equipment Patrol Truck Amount of Investment $40,500 $55,000 Useful life 8 years 11 years Estimated residual value $3,000 $6,000 Estimated total income over the useful life $25,000 $38,700 Determine the expected average rate of return for each proposal.   Year Net Income Net Cash Flow Year 1 $43,500 $81,000 Year 2 26,500 64,000 Year 3 13,500 50,500 Year 4 2,900 40,000 The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life: Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter.  Would management be likely to look with favor on the proposal? Explain.

Technology Innovations is planning to purchase one of two chip insertion machines. Due to the pace of technological change in this area, it is realistic to assume that these are one-shot investments. The expected cash flows for each machine are shown below. MARR is 8%/year. Based on a present worth analysis, which machine is preferred?

The expected average rate of return for a proposed investment of $6,720,000 in a fixed asset, using straight-line depreciation, a useful life of 20 years, no residual value, and an expected total income of $20,160,000 over the 20 years, is (round to two decimal places) a. 1.50% b. 30.00% c. 60.00% d. 15.00%

How do you calculate net investment in working capital, net cash flows, present value of net cash flows, and NPV? WACC is 10.10%

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Compute the NPV based on the following data             Life of project                10.00  year  Required Investment       500,000.00   Required Rate of Return   8%   Required Working Capital to be released at the end of the project       35,000.00   Salvage value of equipment at end of year 10       12,000.00   Required overhaul in year 5         60,000.00   Annual increase in net income for this project       85,000.00             Year Cash flow     0       1       2       3       4       5       6       7       8       9       10               Net Present Value       IRR             Should we accept this project:?