t cash flows of P5,000 per year for 2 years. Process Y will cost P11,500 and will produce cash flows of P4,000 per year for 4 years
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NUBD Inc. is considering two average-risk alternative ways of producing its patented polo shirts. Process X has a cost of P8,000 and will produce net
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- NUBD Inc. is considering two average-risk alternative ways of producing its patented polo shirts. Process X has a cost of P8,000 and will produce net cash flows of P5,000 per year for 2 years. Process Y will cost P11,500 and will produce cash flows of P4,000 per year for 4 years. The company has a contract that requires it to produce the shirts for 4 years, but the patent will expire after 4 years, so the shirts will not be produced after 4 years. Inflation is expected to be zero during the next 4 years. If cash inflows occur at the end of each year, and if NUBD's cost of capital is 10 percent, by what amount will the better project increase NUBD's value? *NUBD Inc. is considering two average-risk alternative ways of producing its patented polo shirts. Process X has a cost of P8,000 and will produce net cash flows of P5,000 per year for 2 years. Process Y will cost P11,500 and will produce cash flows of P4,000 per year for 4 years. The company has a contract that requires it to produce the shirts for 4 years, but the patent will expire after 4 years, so the shirts will not be produced after 4 years. Inflation is expected to be zero during the next 4 years. If cash inflows occur at the end of each year, and if NUBD’s cost of capital is 10 percent, by what amount will the better project increase NUBD’s value? P 677.69 P1,098.89 P1,179.46 P1,237.76 P1,312.31Arrowroot Ltd is considering whether to invest in a machine that produces soft drink bottles now or in one year’s time. The machine costs $2 million and the bottles will be ready for sale immediately after the machine is purchased. The machine is expected to produce 1 million bottles per year forever. Currently, the bottle can be sold for $0.4 each but next year the price will change. If there is a high demand, the price for one bottle will be $0.6. If the demand is normal, the price will be $0.3 per bottle. If the demand is low, the price will be $0.1 per bottle. The probability of high demand is 0.3, the probability of normal demand is 0.2 and the probability of low demand is 0.5. The price will remain at this new level forever. Assume no taxes and the company’s cost of capital is 10 percent per annum. Should the company invest in the machine now or delay it by one year? Show all calculations. What is the value of the option to delay?
- BRAC is considering investing $100000 in a new machine with an expected life of 5 years. The machine will have no scrap value at the end of the 5 years. It is expected that 20000 units will be sold each year at a selling prices of $6.00 per unit. Variable production costs are expected to $2.30 per unit, while incremental fixed costs, mainly the wages of a maintenance engineer, are expected to be $10000 per years. BRAC uses a discount rate of 11% for investment appraisal purposes and expects investment projects to recover their initial investment within two years. Required: (1) Explain why risk and uncertainty should be considered in the investment appraisal process. (2) Calculate and comment on the payback period of the project. (3) Evaluate the sensitivity of the projects net present value to a change in the following project variables: sales volume sales price variable cost and discuss the…Your company is trying to decide whether it should purchase a copier from Xerox or lease it. The copier has an expected life of 6 years, after which it has only marginal value (you can ignore any residual value). If you purchase it, the price is $145,000, payable now, and you would have to pay an annual service charge of $8,000. If you lease it, you would have an annual payment of $36,000 each year (for 6 years), which includes service. The lease payment and the annual service charge occur at the beginning of each year. The interest rate is 3.8%. Which option is least costly?QRW Corp, needs to replace an old machine with a new, more efficient model. The new machine being considered will result in an increase in camings before interest and taxes of $70,000 per year. The purchase price is $200,000, and it would cost an additional $10,000 to properly install the machine. In addition, to properly operate the machine, inventory must be increased by S10,000. This machine has an expected life of 10 years, with no salvage value. Assume that a straight-line depreciation method being used and that this machine is being depreciated down to zero, the marginal tax rate is 34%, and a required rate of return of 15%. (i)Solve for the value to show whether this machine should be purchase or not (ii) Solve for the value of terminal cash flow in year 10 (annual after-tax cash flow in year 10 plus any additional cash flows associated with the termination of the project).
- QRW Corp, needs to replace an old machine with a new, more efficient model. The new machine being considered will result in an increase in camings before interest and taxes of $70,000 per year. The purchase price is $200,000, and it would cost an additional $10,000 to properly install the machine. In addition, to properly operate the machine, inventory must be increased by S10,000. This machine has an expected life of 10 years, with no salvage value. Assume that a straight-line depreciation method being used and that this machine is being depreciated down to zero, the marginal tax rate is 34%, and a required rate of return of 15%. (i) Solve for the value of the initial outlay associated with this project. (ii) Solve for the value of annual after-tax cash flows for this project from 1 through 9MaBak Inc. is considering buying a robotic assembly machine that will bring in an extra $28,000 per year in profit (after deducting costs for electricity, maintenance, etc.). The machine will last for 8 years; however, it will not have any resale value. MaBak Inc. has not priced robotic machines. Calculate the maximum price MaBak Inc. should pay if they want to earn an 10% return on any money invested in the company. Which table will you use for the above calculation? Number of periods? Interest Rate? Factor? What is the maximum price?PIX company is considering licensing a water treatment system. The company can purchase a one-year option for P150,000 that will give it time to pilot test the process or the company can acquire the license now at a cost of P1.8M plus 25% of sales. If the company waits 1 year, the cost will increase to P1.9M plus 30% of sales. If PIx projects the sales to be P1M per year over the five-year license period. Determine the: PWnow and PWone-year. MARR is 15% per year
- Hunt Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment. CAM X and CAM Y. Both CAM X and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is P3,600,000 and it has a net annual after-tax cash inflow of P900,000. The CAM Y model is more expensive, selling for P4,200,000, but it will produce a net annual after-tax cash inflow of P1,050,000. The cost of capital for the company is 10%. Required: 1. Calculate the NPV for each project. Which model would you recommend? 2. Calculate the IRR for each project. Which model would you recommend?XYZ is considering buying a new, high efficiency interception system. The new system would be purchased today for $47,700.00. It would be depreciated straight-line to SO over 2 years. In 2 years, the system would be sold for an after-tax cash flow of $14,600.00. Without the system, costs are expected to be $100,000.00 in 1 year and $100,000.00 in 2 years. With the system, costs are expected to be $79,000.00 in 1 year and $69,700.00 in 2 years. If the tax rate is 46.50% and the cost of capital is 8.40%, what is the net present value of the new interception system project? a. $11893.11 (plus or minus $50) b. $12724.27 (plus or minus $50) c. $8553.76 (plus or minus $50) d. $9953.14 (plus or minus $50) e. None of the above is within $50 of the correct answerAng Electronics, Inc., has developed a new HD DVD. If the HD DVD is successful, the present value of the payoff (at the time the product is brought to market) is $34.3 million. If the HD DVD fails, the present value of the payoff is $12.3 million. If the product goes directly to market, there is a 50 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.33 million to test-market the HD DVD. Test-marketing would allow the firm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 11 percent. Calculate the NPV of going directly to market and the NPV of test-marketing before going to market. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to nearest whole dollar amount, e.g., 1,234,567.).