Chapter 10, Problem 23P

Quentin, a Financial Manager, has been approached by five different subsidiaries cach of whom are recommending investment in a new business line. Quentin has estimated the relevant cash flows in the table below and is presenting his results to the Board for approval. For each project he has estimated the present value of the cost of the project and also the present value of future income flows. The five projects are all divisible and the company uses 12% as the discount rate for projects of this nature. Project Cost (£) 240,000 330,000 270,000 375,000 210,000 PV (£) 315,000 343,500 390,000 345,000 300,000 B D a) Explain the differences and similarities between net present value (NPV) and the profitability index (P). Calculate the profitability index for each of the five projects and rank the projects in the order of preference that would maximise shareholders wealth. b) c) Calculate the NPV for each of the five projects and rank the projects in the order of preference that would…

Suppose you are a senior financial analyst at PADICO and you are analysing the following project, where all of the dollar figures are in thousands of dollars. In year 0, the project requires an $11,350 investment in plant and equipment, which is depreciated using the straight-line method over seven years, and has a salvage value of $1,400 in year 7. The project is forecast to generate sales of 2,000 units in year 1, growing at 1.5% a year until year 5, then the growth rate declines to 0% in years 6 and 7. The cost of capital is forecast to be 11.0% in years 1-6, rising to 12.2% in years 6 and 7. The tax rate is forecast to be a constant 35.0%. Sales revenue per unit is forecast to be $9.70 in year 1 and then grow at 1% per annum. Variable cost per unit for Direct Labor, Materials, Selling Expenses, and Other Variable Costs are forecast to be $3.50, $2.00, $1.20, and $0.70, respectively, in year 1 and then grow at 1% per annum. Cash fixed costs for Lease Payment, Property Taxes,…

As a recent graduate of the UWIOC, The General Manager of the company has hired you to work alongside the Financial Controller of the company to help determine whether the company should invest in the new product line. He has provided you with the following questions to guide you in your assessment of the project and to present your findings to the Company.  1. Determine the weighted average cost of capital (WACC) for Vigour Pharmaceuticals. (Formula to be used is attached)

As a recent graduate of the UWIOC, The General Manager of the company has hired you to work alongside the Financial Controller of the company to help determine whether the company should invest in the new product line. He has provided you with the following questions to guide you in your assessment of the project and to present your findings to the Company.  1. Determine the weighted average cost of capital (WACC) for Vigour Pharmaceuticals. (Formula to be used below)

Assume that you are the CEO of a large conglomerate that has various business lines in the agriculture and energy industries. The company is in preparation to build an energy plant that will need to be funded in the next year with the total amount of $200,000,000.  In order to fund this amount, discuss lengthy how you would finance this project. While answering, focus on the variety of resources the company can use under different economic conditions / business cycles. Discuss in detail. Discuss the pros and cons of the suggested resources comprehensively.

You are an employee of University Consultants, Ltd., and have been given the following assignment. You are to present an investment analysis of a new small residential income-producing property for sale to a potential investor. The asking price for the property is $1,250,000; rents are estimated at $200,000 during the first year and are expected to grow at 3percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A 70 percent loan can be obtained at 11 percent interest for 30 years. The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. a. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)?b. What is the first-year debt coverage ratio?c. What is the terminal capitalization rate?d. What is the NPV using a 14 percent discount rate? What does this mean?

Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 650 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $3 500 000 equipment that has residual value in four years of $500 000 and adding $ 850 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:Depreciation method: straight line Variable cost per unit: $17Cash fixed costs per year: $450 000 Discount rate: 10%Tax Rate: 30%Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of the project’s NPV to different scenarios that are defined in terms of the estimated values for each of the project’s value drivers. Please work on two scenarios corresponding to the worst- and best-case outcomes for…

Assume that the company, where you are working as a team in Financial Department, is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 650 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $3 500 000 equipment that has residual value in four years of $500 000 and adding $ 850 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:  Depreciation method: straight line  Variable cost per unit: $17  Cash fixed costs per year: $450 000  Discount rate: 10%  Tax Rate: 30%  Need scenario analysis with cash flows of the assumed project to determine the sensitivity of the project's NPV to different scenarios that are defined in terms of the estimated values for each of the project's value drivers. Please work on two scenarios corresponding to the worst- and best-case…

Hello, Crichton Publications uses the accounting rate of return method to evaluate proposed capital investments.  The company's desired rate of return is 17.0%.  The project being evaluated involves a new product that will have a three-year life.  The investment required is $370,000, which consists of $240,000 machine and inventories and accounts receivable totaling $130,000.  The machine will have a useful life of three years and a salvage value of $167,500.  The salvage value will be received during the fourth year, and the inventories and accounts receivable related to the product also will be converted back to cash in the fourth year.  Accrual accounting net income from the product will be $94,000 per year, before depreciation expense, for each of the three years.  Because of the time lag between selling the product and collecting the accounts receivable, cash flows from the product will be as follows.  Use the following table (present value table).  (Use appropriate factor(s) from…