XYZ Corporation is considering a capital budgeting project and requires a detailed analysis. The company has provided you with the following financial information and ratios: Return on Investment (ROI): 15% Payback Period: 3 years Net Present Value (NPV): R50,000 Internal Rate of Return (IRR): 12% Cash Flows: Year 1: R20 000 Year 2: R30 000 Year 3: R40 000 1.4 Calculate the ARR for XYZ Corporation. Assume depreciation is calculated on the straight-line method and that the project has a scrap value of R5000

XYZ Corporation is considering a capital budgeting project and requires a detailed analysis. The company has provided you with the following financial information and ratios: Return on Investment (ROI): 15% Payback Period: 3 years Net Present Value (NPV): R50,000 Internal Rate of Return (IRR): 12% Cash Flows: Year 1: R20 000 Year 2: R30 000 Year 3: R40 000 1.4 Calculate the ARR for XYZ Corporation. Assume depreciation is calculated on the straight-line method and that the project has a scrap value of R5000

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?
The net cash flow per year for the investment projects A and B, is presented in the table below. Expected Net Cash Flow ($) Project 0 1 2 3 4 A -10,000 6500 3000 3000 1000 B -10,000 3500 3500 3500 3500 Calculate the NPV, IRR, PI, and PVR for the cash flows given in the following table. Assume the minimum acceptable rate of return of 8%. Which projects should be accepted if they are independent projects? Would the selection of the projects change if the cost of capital were 12%?
a. Capital budgeting is the process of identifying, analyzing and selecting investment projects whose returns are expected to extend beyond one year. This capital budgeting decision for an investment requires the analysis of some factors. List and explain three (3) of these factors. b. You have an investment opportunity that requires an initial investment of GH¢5,000 today and will pay GH¢6,000 in a year’s time. If an alternative investment with similar risk pays 25%, should you invest? c. You will retire in 18 years and you currently have GH¢250,000 saved, and your plan is to have GH¢1,000,000 at your retirement. What annual interest rate must you earn to reach this goal, assuming you do not save any additional funds? d. With practical example(s), differentiate between compounding and discounting. e. As a Business Finance student, what is the essence of the valuation principle in your personal life?
Calculate/estimate the IRR(s) for a 6-year project with the following cash flows: CF0 = -50, CF1 =28 = CF2 = CF3 = CF4 = CF5, and CF6 = -93. In Excel, plot the NPV (= Y axis) against r (= discountrate), using r = 0%, 2%, and so on until you find all IRRs in the chart. Identify/estimate all IRRs.
Consider a project with initial investment of Birr 25,000 generating the following cash flows over 4 years. Year Project cash flow (Birr) 0 (25,000) 1 5,000 2 7,000 3 13,000 4 16,000 ii.1 Based on the above details compute the following: Payback period Return on Investment (ROI) Net Present Value (NPV) at 15% discount factor Internal Rate of Investment (IRR) Profitability Index (PI) ii.2 Do you accept this project for investment? Give reason for your answer.
. Capital budgeting is the process of identifying, analyzing and selecting investment projects whose returns are expected to extend beyond one year. This capital budgeting decision for an investment requires the analysis of some factors. 1. List and explain three (3) of these factors. 2. You have an investment opportunity that requires an initial investment of GH¢5,000 today and will pay GH¢6,000 in a year’s time. If an alternative investment with similar risk pays 25%, should you invest? 3. You will retire in 18 years and you currently have GH¢250,000 saved, and your plan is to have GH¢1,000,000 at your retirement. What annual interest rate must you earn to reach this goal, assuming you do not save any additional funds? 4. With practical example(s), differentiate between compounding and discounting. 5. As a Business Finance student, what is the essence of the valuation principle in your personal life?
Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC: 10.00% Year 0 1 2 3 Cash flows -$1,025 $500 $500 $500
The cash flows associated with an investment project are as follows: Year Project Y 0 (40 000) 1 10000 2 10000 3 15000 4 20000 The required return is 5 percent. Reinvestment rate 6%. What’s the discount payback period of the projects? (compile a spreadsheet) Calculate NPV, PI, IRR , MIRR of a projects Should the firm accept the project?
Appelbaum Inc. is comparing several alternative capital budgeting projects as shown below: Projects A B C Initial investment $80,000 $120,000 $160,000 Present value of net cash flows 90,000 110,000 200,000 Using the net present value, how many of the projects are available?? Group of answer choices
ABC Company is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? Note that the company uses its WACC for the required rate of return. WACC: 10.00% Year 0 1 2 3 Cash flows -$950 $500 $500 $500
A project with the following cash flows received each year and with a required return of 8%.Initial Outlay = RM100Cash Flows: Year 1 = RM40Year 2 = RM50Year 3 = RM60 With the information given, compute: i. Discounted payback periodii. Net Present Value andiii. Profitability Index.