Net Present Value/Present Value Index

We should accept the project because of the positive NPV and high IRR. We will gain $532 million in wealth which is a big money on the scale like this. The company has a bond rating of AA that makes the risk relatively low. So we should definitely say yes.

Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC0 = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s

Peter’s Peripherals assembles multimedia upgrade kits --- sets of components for adding sound and video to desktop computers. The demand for their kits for the next four quarters is estimated in the table below. Unit manufacturing cost for each kit is $160. Holding costs on each kit is $80 per quarter. Any kit that must be delivered late is assessed a backorder cost of $120. Each worker is capable of finishing 10 kits per quarter. If the company chooses to vary work force levels, it will incur costs of $400 for each additional worker; $600 for each termination. The company currently has 28 employees.

company is considering a capital investment in a new machine and you are in charge of making a

For year one, the equipment cost will be $107,000.00. For years 2 and 3 the cost has decreased significantly to $20,000.00. Inventory cost of year 1 will be $150,000.00, while for year 2 and 3 it will only be $100,000.00.

Returns: The company will plan to repay its loans after 5 years, which would give it enough time to assess its growth and gather profits from the computers that it sells. This initial revenue would cover building rent costs, equipment, wages, interests, and all the factors necessary for starting this company. Once the loans have been repaid, the ongoing expenses left will be for wages, maintenance, and

estimated that the machine has a salvage value of $8,000. The machine is expected to be used for 80,000

The below analytical graphs will depict and projects potential sales/gross margins figures from year to year when operational. Overall sales of $70 000. Financial statements (profit/loss, cash flow and balance) have been prepared to depict financial operations for the first month of operation as well as if business was to remain operation for 3 consecutive years.

23. Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plan that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars):

It appears, barring some sort of internal management conflict, that this is a good investment for

Capital needed for this venture has been estimated to be $400,000. The majority of the costs are associated with the machinery,

The questions have been attempted as follows and the same analogy has been taken to excel for rest of the part of the question:

This report is based around the decision of whether or not Sigma plc should invest within a new machine which is to be financed with a bank loan. As directors have set an accounting rate of return of 12% and payback period of 5 years for the project, a series of investment appraisal techniques have been conducted with these constraints in mind in order to evaluate whether investment in the machine would be a wise or risky decision. Figures within the cash flow reflect on all calculations made and all methods will be discussed in depth, with recommendations and a clear conclusion as to what decisions Sigma need to undertake in order to secure a good investment.

Madison industries offered to sell the reworked machinery to Johnson as special order for $68,400. Johnson agreed to pay the price when it takes delivery in two months. The additional identifiable costs to rework for the machinery to Johnson’s specifications are as follows:

| The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.