Find NPV: A business is evaluating a potential project with an initial expenditure of $925,000 upfront and an additional $37,500 required in the following year for extra supplies. The CFO anticipates incoming cash flows of $289,000 per year from the second to the sixth year. At a discount rate of 12.5%, should the company approve the project?

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.

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?

If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?

Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?

Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?

Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?

Your company is planning to purchase a new log splitter for its lawn and garden business. The new splitter has an initial investment of $268,000. It is expected to generate $40,000 of annual cash flows, provide incremental cash revenues of $194,772, and incur incremental cash expenses of $120,000 annually. What is the payback period and accounting rate of return (ARR)? Round your answers to 1 decimal place. Payback period years. ARR %

Kabab Co. is considering a $240,000 investment, which will provide net returns of $110,000, $160,000, and $220,000 in the second, third, and fourth years, respectively. What is the payback period? Round up to the next month Use the following table: Cumulative Cash Cash Outflow Çash Inflow Net Cash Year Flow Flow 2 years and 10 months Ob. 2 years and 9 months 2 years and 11 months Od. 2 years and 8 months

A company manager is faced with an investment proposal of Rp. 100,000,000, - with a period of 4 years and cash inflows every year as follows: Year 1 Rp. 40,000,000 Year 2 Rp. 30,000,000 Year 3 Rp. 30,000,000 Year 4 Rp. 20,000,000 Requested: a. With an interest rate of 12%, with the NPV and PI method, assist the manager in making decisions. Whether the project is accepted or rejected. b. If it is known that the second interest rate is 20% and the cost of capital offered is 17%, calculate the IRR, and make a decision whether to accept or reject the project.