Vacation Resorts Inc. (VRI) is interested in developing a new hotel in Spain. The company estimates that the hotel would require an initial investment of $32 million. VRI expects that the hotel will prodoce positive cash flows of $5.25 million a year at the end of each of the next 20 years. The project's cost of capital is 14%. While VRI expects the cash flows to be $5.25 million a year, it recognizes that the cash flows could, in fact, be much higher or lower, depending on whether the Spanish government imposes a large hotel tax. One year from now, VRI will know whether the tax will be imposed. There is a 25% chance that the tax will be imposed, in which case the annual cash flows will be only $4.2 million. At the same time, there is a 75% chance that the tax will not be imposed, in which case the annual cash flows will be $5.6 million VRI is deciding whether to proceed with the hotel today or to wait I year to find out whether the tax will be imposed. If VRI waits a year, the initial investment will remain at $32 million. Assume that all cash flows are discounted at 14% Should VRI proceed with the project today or should it wait a year before deciding? a Proceed with the project today, its NPV is $2.77 million, while the NPV of waiting one year is $2.4311 million b. Wait one year, since the NPV of waiting one year is $3.3484 million and this is larger than its NPV of undertaking the project today. c. It doesn't matter whether you go ahead and proceed with the project today or wait one year because their NPVs are identical d. Don't accept the project at all-its NPV today and its NPV if you wait one year are both negative. e. Wait one year, since the NPV of waiting one year is $4.4645 million and this is larger than its NPV of undertaking the project today.

YOU ARE A FINANCIAL ANALYST FOR A COMPANY THAT IS CONSIDERING A NEW PROJECT. IF THE PROJECT IS ACCEPTED, IT WILL USE A FRACTION OF A STORAGE FACILITY THAT THE COMPANY ALREADY OWNS BUT CURRENTLY DOES NOT USE. THE PROJECT IS EXPECTED TO LAST 10 YEARS, AND THE ANNUAL DISCOUNT RATE IS 10% (COMPOUNDED ANNUALLY). YOU RESEARCH THE POSSIBILITIES, AND FIND THAT THE ENTIRE STORAGE FACILITY CAN BE SOLD FOR €100,000 AND A SMALLER (BUT BIG ENOUGH) FACILITY CAN BE ACQUIRED FOR €40,000. THE BOOK VALUE OF THE EXISTING FACILITY IS €60,000, AND BOTH THE EXISITING AND THE NEW FACILITIES (IF IT IS ACQUIRED) WOULD BE DEPRECIATED STRAIGHT LINE OVER 10 YEARS (DOWN TO A ZERO BOOK VALUE). THE CORPORATE TAX RATE IS 40%. DISCUSS WHAT IS THE OPPORTUNITY COST OF USING THE EXISTING STORAGE CAPACITY?

Green & Company is considering investing in a robotics manufacturing line. Installation of the line will cost an estimated $15.7 million. This amount must be paid immediately even though construction will take three years to complete (years 0, 1, and 2). Year 3 will be spent testing the production line and, hence, it will not yield any positive cash flows. If the operation is very successful, the company can expect after-tax cash savings of $10.7 million per year in each of years 4 through 7. After reviewing the use of these systems with the management of other companies, Green's controller has concluded that the operation will most probably result in annual savings of $7.9 million per year for each of years 4 through 7. However, it is entirely possible that the savings could be as low as $3.7 million per year for each of years 4 through 7. The company uses a 12 percent discount rate. Use Exhibit A.8. Required: Compute the NPV under the three scenarios. Note: Round PV factor to 3…

Cisco is considering the development of a wireless home networking appliance, called HomeNet. The company expects to sell 300000 units per year over the project's life at an expected wholesale price of 170. Actual production will be outsourced at a cost of 93 per unit. Additionally, the company will spend $21000 in interest expense each year towards financing the project. In year 1, the firm must increase its accounts receivable by $854000, which will return to regular levels at the end of the project. The company spent $285000 last year on software to develop the router. $101.8 million of new equipment will be purchased and then depreciated using the straight-line method over a 10-year life. They expect the market value of the equipment to depreciate at 2.8% per year. The project is expected to end in year 7. The current tax rate is 21%. Use this rate for both income tax rate and the capital gains rate. The WACC for the company is 12.4%.áWhat is the NPV of the project? $21,604,034.24…