Question

You are analyzing the Photon project, which has the expected cash flows below. The Photon project...

You are analyzing the Photon project, which has the expected cash flows below. The Photon project has a 4 year life (assume "best life") and is competing against another project for funding (the Warp project). That is, the two projects are mutually exclusive. The Warp project has an 8 year life (assume "best life"; cash flows not provided).

You notice that the projects have lives of different lengths, so you ask whether the Photon project can be repeated at the end of 4 years. The answer is that it can be. To adjust for the differing lives, you decide to use the NPV replacement chain method. For your initial analysis, you are to assume that Photon can be duplicated exactly.

Using the replacement chain method and a discount rate of 13.5%, compute Photon's NPV, in a way that would be appropriate to compare to the NPV of the Warp project. Round to nearest penny.

Year 0 cash flow = -163,000

Year 1 cash flow = 71,000

Year 2 cash flow = 71,000

Year 3 cash flow = 71,000

Year 4 cash flow = 71,000

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are analyzing the Photon project, which has the expected cash flows below. The Photon project...
You are analyzing the Photon project, which has the expected cash flows below. The Photon project has a 4 year life (assume "best life") and is competing against another project for funding (the Warp project). That is, the two projects are mutually exclusive. The Warp project has an 8 year life (assume "best life"; cash flows not provided). You notice that the projects have lives of different lengths, so you ask whether the Photon project can be repeated at the...
Suppose you have two mutually exclusive projects. Project ABACUS has small cash flows that occur over...
Suppose you have two mutually exclusive projects. Project ABACUS has small cash flows that occur over the next six years. Project CHEWY has no cash flow for 5 years, and 1 very large cash flow in year 6. Why is NPV the best choice for comparing these two projects?
1.-You are evaluating a project that will cost $499,000​, but is expected to produce cash flows...
1.-You are evaluating a project that will cost $499,000​, but is expected to produce cash flows of $123,000 per year for 10 ​years, with the first cash flow in one year. Your cost of capital is 10.6% and your​ company's preferred payback period is three years or less. a. What is the payback period of this​ project? b. Should you take the project if you want to increase the value of the​ company? 2.- You are choosing between two projects....
All $ amounts in this question are net after-tax cash flows. Your client plans to invest...
All $ amounts in this question are net after-tax cash flows. Your client plans to invest in a wind turbine. The electricity generated will be sold to Duke Energy. Two alternative turbines are available, from which the client will select one. One is produced by GE Wind Energy, the other by Vestas (cash flows not provided). The GE turbine has an expected operating life of 8 years, the Vestas turbine 11 years. Assume that these are the "best lives" for...
You are a project manager. You are estimating cash flows of a potential project that requires...
You are a project manager. You are estimating cash flows of a potential project that requires investment of $250,000 in a machine, including installation cost, and $40,000 in working capital which will be fully captures at the end of the project. The machine has the estimated life of 5 years and will be depreciated vie simplified straight-line method. The project is expected to raise the firm's revenues by $330,000 and costs by $125,000 annually. Since the trend of the product...
A project will cost $204,661.00 today. The project is then expected to generate after-tax cash flows...
A project will cost $204,661.00 today. The project is then expected to generate after-tax cash flows of $30,000.00 per year. An economist also projects that the project will create synergies with other products for the firm and the synergies will create an after-tax cash flow of $12,261.00 per year. The cost of capital for the firm is 10.00%. The firm will run the project for 11.00 years. What is the NPV of this project?
4. Unequal project lives Smith and Co. has to choose between two mutually exclusive projects. If...
4. Unequal project lives Smith and Co. has to choose between two mutually exclusive projects. If it chooses project A, Smith and Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net...
Which of the following criteria is NOT taken into consideration when analyzing a possible replacement project?...
Which of the following criteria is NOT taken into consideration when analyzing a possible replacement project? The cashflows the current project has generated in the past. The discounted cash flows from the old and potential replacement investment. The depreciation associated with the old and potential replacement investment. The sunk cost associated with the original project. A company is considering a project that has a discount rate of 5%. In the first year, it will have -$100,000 in cash flows. In...
1. Which of the following statements is correct? a. A project with conventional cash flows is...
1. Which of the following statements is correct? a. A project with conventional cash flows is one with an initial cash outflow followed by one or more cash inflows. b. The NPV method determines how much the future value of cash inflows exceeds the present value of costs. c. All the answers are correct. d. When two projects are independent, accepting one project implicitly eliminates the other. e. Conventional cash flow patterns could lead to conflicting decisions by NPV and...
Expected Net Cash Flows                                       &n
Expected Net Cash Flows                                             Year                    Project T                               Project F                                                0                      ($100,000)                            ($100,000)                                                1                           75,000                                  40,000                                                2                           65,000                                  42,000                                                3                              —                                      44,000                                                4                              —                                      46,000 The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 12% cost of capital. c.   Suppose you replicate Project T so that it has the same life as Project F. Which project would you choose? NPV Project F...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT