You will calculate investment returns using various ROI methods and appraise a specified new investment to determine its profitability.
Problem 1: A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%.
REQUIRED: What is the project’s NPV? (Hint: Begin by constructing a timeline.) What is the project’s payback period?
Problem 2: Your division is considering two investment projects, each of which requires an up-front expenditure of $15 million. You estimate that the investments will produce the following net cash flows:
REQUIRED: What are the two projects’ net present values, assuming the cost of capital is 5%? What are the two projects’ net present values, assuming the cost of capital is 10%? What are the two projects’ net present values, assuming the cost of capital is 15%?
Problem 3: Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year, and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses.
R3Q1ReD::: Calculate the NPV for each type of truck and decide which to recommend.
You will calculate investment returns using various ROl methods and appraise a specified new investment to determine its profitability.
Problem 1: A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%.
REQUIRED: What is the project's NPV? (Hint: Begin by constructing a timeline.) What is the project's payback period?
Problem 2:Your division is considering two investment projects,each of which requires an up-front expenditure of $15 million.You estimate that the investments will produce the following net cash flows:
Year 1 2 3
Project A
Project B
$5,000,000 10,000,000 20,000,000
$20,000,000 10,000,000 6,000,000
REQUIRED: What are the two projects'net present values, assuming the cost of capital is 5%? What are the two projects'net present values, assuming the cost of capital is 10%? What are the two projects'net present values,assuming the cost of capital is 15%?
Problem 3:Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory.Because both forklifts perform the same function,the firm will choose only one.(They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500.The cost of capital that applies to both investments is 12%.The life for both types of truck is estimated to be 6 years,during which time the net cash flows for the electric-powered truck will be $6,290 per year,and those for the gas-powered truck will be $5,000 per year.Annual net cash flows include depreciation expenses
REQUIRED:Calculate the NPV for each type of truck and decide which to recommend
PDF version is attached in the Assignment Requirements below.
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MacBook Pro
