Ang Electronics, Incorporated, has developed a new mesh network. If successful, the present value of the payoff (whenthe product is brought to market) is $34.9 million. If the mesh network fails, the present value of the payoff is $12.9million. If the product goes directly to market, there is a 50 percent chance of success. Alternatively, the company candelay the launch by one year and spend $1.39 million to test market the mesh network. Test marketing would allow thefirm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 11percent. Calculate the NPV of going directly to market and the NPV of test marketing before going to market. (Do notround intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest wholenumber, e.g., 1,234, 567.) PLEASE GIVE WHOLE NUMBERS Go to market nowfirstTest marketing

Go to market now:Expected Net Present Value = ($34,900,000 * 50%) + ($12,900,000 * 50%)…

Answered: Ang Electronics, Incorporated, has…

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 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Ang Electronics, Incorporated, has developed a new mesh network. If successful, the present value of the payoff (when the product is brought to market) is $33.6 million. If the mesh network fails, the present value of the payoff is $11.6 million. If the product goes directly to market, there is a 40 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.26 million to test market the mesh network. Test marketing would allow the firm to improve the product and increase the probability of success to 70 percent. The appropriate discount rate is 12 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 the nearest whole number, e.g., 1,234,567.) Answer is complete but not entirely correct. Go to market now $ Test marketing first IS 20,400,000 22,850,000 Should the firm conduct test…
Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $24 million. If the DVDR fails, the present value of the payoff is $8.5 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 $1.2 million to test market the DVDR. 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 2 decimal places, e.g., 1,234,567.89.) Should the firm conduct test marketing? multiple choice No Yes
Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $34.8 million. If the DVDR fails, the present value of the payoff is $12.8 million. If the product goes directly to market, there is a 40 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.38 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 70 percent. The appropriate discount rate is 12 percent. Calculate the NPV of going directly to market and the NPV of test marketing before going to market.
Ang Electronics Inc. has developed a new DVD-R. If the DVD-R is successful, the PV of the payoff (when the product is brought to market) is $37 million. If the DVD-R fails, the PV of the payoff is $24 million. If the product goes directly to market, there is a 34 percent chance of success. Alternatively, Ang can spend $9.0 million immediately and delay the launch by one year to test market the DVD-R. Test marketing would allow the firm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 14 percent. a. Calculate the NPV of going directly to market now. (Round the answer to the nearest whole number. Enter the answer in dollars, not millions of dollars. Omit $ sign in your response.) $ NPV b. Calculate the NPV of test marketing first. (Do not round intermediate calculations. Round the answer to 2 decimal places. Enter the answer in dollars, not millions of dollars. Omit $ sign in your response.) $ c. Should the firm conduct test…
Ang 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 $33.6 million if the HD DVD fails, the present value of the payoff is $116 million. If the product goes directly to market, there is a 40 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.26 million to test market the HD DVD Test marketing would allow the firm to improve the product and increase the probability of success to 70 percent. The appropriate discount rate is 12 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) Go to market now Test marketing first Should the firm conduct test-marketing? O No 20,400,000 Yos
All American Telephones Inc. is considering the productionof a new cell phone. The project will require an investment of $13 million. If the phone iswell received, the project will produce cash flows of $8 million a year for 3 years, but ifthe market does not like the product, the cash flows will be only $2 million per year. Thereis a 50% probability of both good and bad market conditions. All American can delay theproject a year while it conducts a test to determine whether demand will be strong or weak.The delay will not affect the dollar amounts involved for the project’s investment or its cashflows—only their timing. Because of the anticipated shifts in technology, the 1-year delaymeans that cash flows will continue only 2 years after the initial investment is made. AllAmerican’s WACC is 8%. What action do you recommend?
Ang 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.).
All American Telephones Inc. is considering the production of a new cell phone. The project will require an investment of $13 million. If the phone is well received, the project will produce cash flows of $8 million a year for 3 years, but if the market does not like the product, the cash flows will be only $1 million per year. There is a 50% probability of both good and bad market conditions. All American can delay the project a year while it conducts a test to determine whether demand will be strong or weak. The delay will not affect the dollar amounts involved for the project's investment or its cash flows-only their timing. Because of the anticipated shifts in technology, the 1-year delay means that cash flows will continue only 2 years after the initial investment is made. All American's WACC is 9%. What's the NPV without waiting? What's the NPV of waiting 1 year?
All American Telephones Inc. is considering the production of a new cell phone. The project will require an investment of $13 million. If the phone is well received, the project will produce cash flows of $8 million a year for 3 years, but if the market does not like the product, the cash flows will be only $1 million per year. There is a 50% probability of both good and bad market conditions. All American can delay the project a year while it conducts a test to determine whether demand will be strong or weak. The delay will not affect the dollar amounts involved for the project’s investment or its cash flows—only their timing. Because of the anticipated shifts in technology, the 1-year delay means that cash flows will continue only 2 years after the initial investment is made. All American’s WACC is 10%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet…

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