Perform a financial analysis for a project using the Net Present Value method. Assume the projected costs and benefits for this project are spread over four years as follows: Estimated costs are $200,000 in Year 1 and $30,000 each year in Years 2, 3, and 4. Estimated benefits are $0 in Year 1 and $100,000 each year in Years 2, 3, and 4. (1) Use a 9 percent discount rate and round the discount factors to two decimal places. Calculate the NPV and the year in which payback occurs. (2) Explain in plain language what the NPV means in this context
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Perform a financial analysis for a project using the Net Present Value method. Assume the projected costs and benefits for this project are spread over four years as follows: Estimated costs are $200,000 in Year 1 and $30,000 each year in Years 2, 3, and 4. Estimated benefits are $0 in Year 1 and $100,000 each year in Years 2, 3, and 4.
(1) Use a 9 percent discount rate and round the discount factors to two decimal places. Calculate the NPV and the year in which payback occurs.
(2) Explain in plain language what the NPV means in this context.
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- The chart below shows the initial investment and expected yearly payback for Project A and Project B Project A Project B Initial Investment $ 300,000 $ 450,000 Expected Yearly PayBack $ 45,000 $ 90,000 For Project A, There has been a change in the expected yearly payback. Years 1 and 2 – you are expecting $45,000 each year. For the next three years, you are expecting $70,000 each year. What would be the average ROI for this alternative?7. Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual operating cost will be in direct proportion to the level of production at $8.50 per unit, and each unit of product can be sold for $50.00. If the project has a life of 7 years, what is the minimum annual production level for which this project is economically viable? Work this problem on an after-tax basis. Assume 5-year SL depreciation (SV5=0), MV7 = 0, an effective income tax rate of 40%, and an after-tax MARR of 10% per year.Two new Internet site projects are proposed to a young start -up company. Project A will cost $250,000 to implement and is expected to have annual net cash flows of $75,000. Project B will cost $150,000 to implement and should generate annual net cash flows of $52,000. The compnay is very concerned about their cash flow. Using the payback period, which project is better, from a cash flow standpoint?
- In a recent review meeting, the client has insisted you complete the project on time. You would like to get the Estimate at Completion for your project, so you perform Earned Value analysis and get the following data: the value of the completed work is $176,500; you have spent $223,500; and the planned value is $229,100. The initial budget of the project is $419,500. What is EAC? Your answer should be rounded to the nearest whole number, for example 123,456.73 should be rounded to 123,457. ARare Agri-Products Ltd. is considering a new project with a projected life of seven (7) years. The project falls under the government’s subsidy program for encouraging local agricultural products and is eligible for a one-time rebate of 25% on any initial equipment installed for the project. The initial equipment (IE) will cost $41,000,000. An additional equipment (AE) costing $3,500,000 will be needed at the end of year 3. At the end of seven (7) years, the original equipment, IE, will have no resale value but the supplementary equipment, AE, can be sold for $50,000. A working capital of $1,350,000 will be needed. The project is forecast to generate sales of agri-products over the seven years as follows: Year 1 70,000 units Year 2 100,000 units Years 3-5 250,000 units Years 6-7 325,000 units A sale price of $150 per unit for the first two years is expected and then decline to $90 per unit thereafter as the newness of the product loses some sheen. The variable expenses will amount to…Give an example of a project which is a failure in cost estimation and give suggestions for making it appropriate.
- Suppose your organization is deciding which of THREE projects to bid on. The information or each is in the Table 2 below. Assume that all up-front investments are not recovered, so the are shown as negative profits. Table 2: Three Projects Details Estimated Probability (P) Profits/Losses Project A 50% RM120,000 50% (RM50,000) Project B 30% RM100,000 40% RM50,000 30% (RM60,000) Project C 70% RM20,000 30% (RM5,000) Tasks: (a) Calculate the Expected Monetary Value (EMV) for each project. Then, insert all the detail: into the table. (b) Based on your result, explain on which projects you would bid. Be sure to use the EMV information and your personal risk tolerance to justify your answer.The following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $15 or the product price is $25. Profit Project A P= $15 60 B -28 C 40 Using the maximax rule, the decision maker would choose... Multiple Choice A. B. P = $25 80 160 100 impossible to say from the information givenA 4-year financial project has net cash flows of $20,000; $25,000; $30,000; and $50,000 in the next 4 years. It will cost $75,000 to implement the project. If the required rate of return is 0.2, conduct a discounted cash flow calculation to determine the NPV.
- A leading artist is working with a specialist metalworking firm to produce an ambitious piece of public art that will stand in the main square of a city. The project is controversial – many citizens feel the artwork will clash with the traditional architecture of surrounding buildings. However, the mayor is firmly behind the project. A large share of the cost of the artwork is being met by a donation from a successful local entrepreneur. They have made it clear that they will stop the funding at any time if they feel the project is not being properly managed and there is a risk that the artwork will have the kind of construction and public safety problems that similar artworks have had elsewhere. Suggest four ways you think would keep this person supporting the project as the work proceeds. For each of these ways, state who would be responsible for it. How, when and where would each way be done?Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000.An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount to 30% of salesrevenue.…Manager Cafe "Blue Sky" is considering investing 2 (two) projects. Project X is an investment of $ 75,000 to replace a working but outdated cooling equipment. Project Y is a $ 150,000 investment to expand the dining facilities. Relevant cash flow data for the two projects over the expected 2 years are as follows: Project X Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.16 $0 0.08 $0 0.66 $50000 0.82 $50000 0.18 $100000 0.10 $100000 Project Y Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.50 $0 0.13 $0 0.50 $200000 0.74 $100000 0.13 $200000 Calculate: Expected value, standard deviation, and coefficient of variation for cash flows from each project. Compute: Risk-adjusted NPV for each project using a cost of capital of 15% for riskier projects, and 12% cost of capital for less risky projects. Which project is more…