Given the following, calculate the project's cash flows, NPV, and IRR.Initial investment $325,000Expected life is 5 yearsFirst Year Revenues: 145,000First-Year Expenses: $65,000• Growth for revenue and expenses: 4.5 percent per yearStraight Line Depreciation over 5 yearsSalvage Value: $50,000One-time net working capital investment of $10,000 is required at the start of the project and will be recovered at project endThe tax rate is 34 percentThe risk-free rate is 4 percentBeta is 1.1• The expected market return is 8 percentAnswer the following:●●●●●●●●●What are the cash flows for each year?What is the NPV?What is the IRR?

The net present value of a project determines the value of the project by considering the present…

Answered: What are the cash flows for each year?…

Business

Finance

What are the cash flows for each year? What is the NPV? • What is the IRR? .

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

See similar textbooks

Related questions

Q: 2. a) a $1,000 20 year-bond with an annual coupon interest rate of 14 percent is selling at $1,300.…

A: Yield to maturity:The concept of “yield to maturity” refers to the interest rate that an investor…

Q: You invest $96 in a risky asset and the T-bill. The risky asset has an expected rate of return of…

A: Standard deviation is frequently employed as a risk or volatility indicator. Making educated…

Q: 1.) You purchase 600 shares of XYZ Corporation at $30 per share using an initial margin of 70%. The…

A: The initial margin is the amount that needs to be deposited in the account of the stock exchange so…

Q: Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying…

A: Net Present Value is the sum of the present value of all the cash inflows and outflows. A project…

Q: Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery…

Q: 1. Compute the break-even point in units using conventional analysis. $400000 2. Compute the…

A: Formula for calculating Break even point :Break even point = Total fixed cost / Contribution margin…

Q: For the nonconventional net cash flow series shown, the external rate of return per year using the…

A: The MIRR is the modified rate of internal rate which assumes that reinvestment is different from the…

Q: Nikhil Limited purchased a machine on 1st July, 2019 for 8, 90,000 and freight and transit insurance…

A: Cost of the asset includes the purchase cost and all directly attributable costs.Cost of the machine…

Q: Value of a stock is currently at $40. Volatility of that stock is 30% per year and risk- free…

A: Options are derivative products that gives the holder of option to buy or sell the stock on…

Q: According to the income approach, this transaction would be recorded as a A. $60,000 increase in…

A: The transactions get recorded as income approach, expenditure approach and product approach. We will…

Q: Honda Motor Company is considering offering a $2,100 rebate on its minivan, lowering the vehicle's…

A: Sales refer to the amount of cash that the company generates by selling its periodic produce. It is…

Q: Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is…

A: Degree of Operating leverage (DOL) for ZTech = 1+(Fixed cost /…

Q: Please follow the following steps to conduct the financial analysis of Pharmamax: 1. Enter the…

A: The objective of this question is to conduct a comprehensive financial analysis of Pharmamax, a…

Q: Depreciation and accounting cash flow A fim in the thed year of depreciating is only asset, which…

A: The objective of this question is to calculate the operating cash flow (OCF) for the current year…

Q: Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2.00, a dividend in year 2…

A: The objective of the question is to calculate the value of the stock of Lifecycle Motorcycle Company…

Q: As an analyst of Firm A, you are investigating the possible acquisition of Firm T. You estimate that…

A: Present expected rate of return of firm T (Ke)=( DPS / P0 + g)* 100.= (0.8/20+0.06)∗100=10%

Q: What is the NPV of a project

A: In the 6th year the working capital invested will be drawn from project hence $5000 is shown in 6th…

Q: Sanjay has 90 euros to spend before he flies back to the United States. He wishes to purchase…

A: The price that needs to be paid by the buyer at the airport will be paid in the currency in which…

Q: You are given the following information concerning Company A with 13% tax rate. Its common stock is…

A: The weighted average cost of capital is the combined cost of capital from all sources such as debt,…

Q: Um projeto tem capex de $1milhão no ano zero e irá gerar EBITDA de $280 mil por ano durante 5 anos…

A: Capex (Ano 0): $1 million EBITDA Annual (Ano 1 ao 5): $280 million Capex Depreciation: 10 years…

Q: 2/3 1. by by 2. 2. Explain why choosing a model by maximizing R² or minimizing ô is the same thing.…

A: The first part of the question is asking why maximizing R² or minimizing ô in a model is the same…

Q: Find 11-month interest rate if the price of 5% bond maturing in 5 month is $99 and the price of 8%…

A: Yield to maturity is the rate of return realized on bond when bond is held till maturity of bond…

Q: is composed of the following sources and current market value proportions: Source of Capital…

A: Weighted average cost of capital is the weighted cost of equity , weighted cost of debt and weighted…

Q: Mrs. Bean is considering adding a machine to her operation. The machine she wants would cost…

A: Net present value is a capital budgeting technique used to evaluate the profitability of the project…

Q: firm 142,000 shares and received net proceeds of $18.56 per share. Hirani & Tran served as the and…

A: Underwriters are intermdediaries that sell the stocks in the market on the behalf of the company and…

Q: Mako Industries is considering changes in its working capital policies to improve ts cash flow…

A: Introduction:The term return on assets can be defined as the returns which a company can generate…

Q: Stock X Realized Return Year End 2004 2005 2006 2007 2008 2009 Stock Y Realized Return - 14.6% 4.3%…

A: The covariance shows how much the two variables are related and dependent on each other. It lies…

Q: Dyrdek Enterprises has equity with a market value of $1.8 million and the market value of debt is…

A: NPV is defined as the sum of the present values of all future cash inflows less the sum of the…

Q: Consider a convertible bond as follows: par value: $1,000.00 coupon rate: 5.00% market…

A: 1. Par Value of Bond: $1,000.00 2. Coupon Rate: 5.00%3. Market Price of Convertible Bond: $950.00 4.…

Q: The following graph represents the Cumulative Average Abnormal Return (CAAR) for the stocks of…

A: An efficient market is a financial market where asset prices rapidly and accurately reflect all…

Q: Quick Print Press borrowed $20 000 from the Provincial Bank on May 25 at 7.5% and secured the loan…

A: 25-MayLoan Amount 25-MayLoan Amount $ 20,000.00Interest…

Q: Cookie Dough Corporation has two different bonds currently outstanding. Bond M has a face value of…

A: Bonds refer to instruments issued to raise debt capital from non-traditional sources such as…

Q: Your friend Sue has asked you to help her out as she is developing her financial plan. Help her come…

A: The objective of the question is to calculate the time it will take Sue to pay off her credit card…

Q: ield to maturity Peter, an intern at Elite Investments, is asked by his supervisor to perform simple…

A: Coupon rate = 6%Yield to maturity = 6% Bond A is trading at par because its coupon rate = yield to…

Q: what total dividends, if any, will it pay out?

A: Let's break down the calculation:1. Projected Capital Budget: $575,0002. Target Capital…

Q: Assume you are offered a $20,000 annual payment, made quarterly (m =4). Payments begin in 10 years…

A: Annual payment=$20000Quarterly payment=20000/4=$5000Discount rate=12%Growth rate=g=4%Deferred…

Q: Andrea is a Partner at KPMG. Her dependent children are interested in technology and sustainability.…

A: The objective of the question is to understand the steps Andrea needs to take to guide her children…

Q: What is the price of a $25 strike call? Assume S = $23.50, \sigma 0.24, г 0.055, the stock pays a…

A: Using the Black - Scholes formula for the below:S = $23.50K = $25σ = 0.24r = 0.055Continuous…

Q: Madeline Rollins is trying to decide whether she can afford a loan she needs in order to go to…

A: The Debt-to-Income (DTI) ratio is a financial metric that expresses the relationship between an…

Q: Consider the Interaction Effect using only the Consumer Defensive Sector in the data presented…

Q: The Bank of Canada 5-year rate is 5.19 percent, and you are eligible for a rate at a federally…

A: A mortgage rate is the interest percentage charged on a mortgage loan, representing the cost of…

Q: Calculate the modified duration of a 30-year mortgage with level annual payments of principal and…

A: Please note that in the question given, there is no mention of the amount of loan. This is only…

Q: The treasurer of a major U.S. firm has $22 million to invest for three months. The interest rate in…

A: Investment refers to the financial asset that is to be bought and sold at profit at some future…

Q: A borrower bought a house for $300,000; he can obtain an 80% loan with a 20-year fully amortizing,…

A: Price of house=$300000Down payment=20%Interest rate=7%Period=20years

Q: Your eccentric Aunt Claudia has left you $50,000 in BP shares plus $50,000 cash. Unfortunately, her…

A: The portfolio variance refers to the measure of the effect of the assets in a portfolio on the total…

Q: The relevant tax rate is 35%, and the required return is 15%. Based on these preliminary estimates,…

A: The NPV is calculated as shown in the table below:Year012345Initial Cost-21000000Working…

Q: A Treasury bond with 7 years to maturity is currently quoted at 109:15. The bond has a coupon rate…

A: The yield value is often associated with investments such as bonds. It represents the income…

Q: Problem 3-64 You decide to sell short 100 shares of Charlotte Horse Farms when it is selling at its…

A: Rate of return (RoR) is a financial metric used to measure the profitability or performance of an…

Q: to earn 7.00% per year and the expected inflation rate is 2.00% per year. How much does Deshawn need…

Q: The present value of the following cash flow stream is $6,760 when discounted at 9 1,150 2? 3 1,450…

A: Cash flow:Year 1 = $1,150Year 3 = $1,450Year 4 = $2,050Present value = $6,760Discount rate = 9%

Concept explainers

Cash Flow Statement Analysis

A company's cash flow is the movement of its cash inflows and cash outflows. A cash flow statement is prepared to determine changes in an organization's cash position. A cash flow statement shows how much money was generated and spent on the business during the fiscal year. The cash flow analysis is a method of analyzing an organization's investing, financing, and operating activities. A cash flow statement reveals an organization's liquidity and solvency, as well as its ability to change cash flows in the future. It eliminates the other effects of accounting methods by improving the comparability of different organizations' operational performance.

Question

Given the following, calculate the project's cash flows, NPV, and IRR.
Initial investment $325,000
Expected life is 5 years
First Year Revenues: 145,000
First-Year Expenses: $65,000
• Growth for revenue and expenses: 4.5 percent per year
Straight Line Depreciation over 5 years
Salvage Value: $50,000
One-time net working capital investment of $10,000 is required at the start of the project and will be recovered at project end
The tax rate is 34 percent
The risk-free rate is 4 percent
Beta is 1.1
• The expected market return is 8 percent
Answer the following:
●
●
●
●
●
●
●
●
●
What are the cash flows for each year?
What is the NPV?
What is the IRR?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Computations

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?