Question

How do I solve this? Need to show work. Questions: #1 - #3: A small factory...

How do I solve this? Need to show work.

Questions:

#1 - #3: A small factory that makes electrical components is considering a project which might generate future cash flows as follows.  The company will make a decision whether they will undertake this project based on the Net Present Value analysis/Payback period/IRR method.

Project:

Initial investment = $100 million

Net cash flows   Year 1             Year 2              Year 3              Year 4  

($million)                 34                30                           40                             36                          

1. What is the payback period of this project?  If the hurdle period for the payback period method to evaluate this project is 4 years, what is your decision on this project?

Answer: Around 3 years and accept

2. What is the Net Present Value of these cash flows assuming that the WACC (can used as a discount rate) of the factory is 10%?  What is your decision on this project based on the result from NPV of this project?   

Answer: $10.346 million and accept

3. What is the IRR (Internal Rate of Return) of this project?  If the WACC of the factory is 10%, what is your decision on this project?

Answer: 14.58% and accept

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1...
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1 2 3 4 5 Cash flows -$1,000 $375 $425 $250 $110 $100 If WACC is 10%, what is NPV and should the company accept the project? Find IRR, MIRR, payback, and discounted payback period. Considering the following projects. Project Year 0 1 2 3 4 A Cash flows -$100 $35 $35 $35 $35 B Cash flows -$100 $60 $50 $40 $30 Project A has...
Senior management asks you to recommend a decision on which project(s) to accept based on the...
Senior management asks you to recommend a decision on which project(s) to accept based on the cash flow forecasts provided. Relevant information: The firm uses a 3-year cutoff when using the payback method. The hurdle rate used to evaluate capital budgeting projects is 15%. The cash flows for projects A, B and C are provided below. Project A Project B Project C Year 0 -30,000 -20,000 -50,000 Year 1 0 4,000 20,000 Year 2 7,000 5,000 20,000 Year 3 20,000...
Please show your steps! Question 1 a) What is the NPV, IRR, and payback period of...
Please show your steps! Question 1 a) What is the NPV, IRR, and payback period of a project with the following cash flows if WACC is 20%? Time: 0 1 2 3 4 5 -$350,000 $100,000 $100,000 $100,000 $50,000 $50,000 NPV= IRR= Payback period= b) Should you accept or reject the project according to NPV and IRR? *can you please include greater than an less than signs.* Thank you.
QUESTION 1 Year Cash flow 0 -1075 1 350 2 450 3 375 4 300 A...
QUESTION 1 Year Cash flow 0 -1075 1 350 2 450 3 375 4 300 A firm is evaluating a potential capital expenditure project. The project will last for 4 years and has the above expected cash flows. The firm has a WACC of 15%. What is the project's NPV? If NPV is negative, enter the number with a minus sign. Use 2 decimal places Year Cash flow 0 -1075 1 350 2 450 3 375 4 300 The firm...
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1...
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1 2 3 4 5 Cash flows -$1,000 $375 $425 $250 $110 $100 If WACC is 10%, what is NPV, and should the company accept the project? Find IRR, MIRR, payback, and discounted payback period.
Use the following information to answer questions 1 through 4: Bumble Bees has identified the following...
Use the following information to answer questions 1 through 4: Bumble Bees has identified the following project. The required return on the project is 9 percent. Year Cash Inflows 0 -$150,000 1 $90,000 2 $70,000 3 $90,000 4 $100,000 1. What is the net present value of the project? 2. What is the IRR of the project? 3. What is the payback period of the project? 4. What is the profitability index of the project? 5. If a project’s payback...
JAYCO is considering acquiring the manufacturer of a key component part used to build its automobiles....
JAYCO is considering acquiring the manufacturer of a key component part used to build its automobiles. The acquisition cost is estimated at $2 million. JAYCO estimates annual cash flows of $120,000 in Year 1; $210,000 in Year 2; $450,000 in Year 3; $1,000,000 in Year 4; and $1,250,000 in Year 5. The required return for this project is 12%. What is the NPV of this project ($):Should JAYCO accept or reject this project based on the NPV rule?What is the...
[Use the following information to answer the next 6 questions.] A firm has a WACC of...
[Use the following information to answer the next 6 questions.] A firm has a WACC of 8% and is deciding between two mutually exclusive projects. Project A has an initial investment of $63. The additional cash flows for project A are: year 1 = $20, year 2 = $39, year 3 = $67. Project B has an initial investment of $73.The cash flows for project B are: year 1 = $60, year 2 = $45, year 3 = $32. a....
(Please show calculations and formulas that are used so I can better understand and work along....
(Please show calculations and formulas that are used so I can better understand and work along. Thanks!) GHI is considering two investment proposals. Estimated cash flows are below. Each will require an initial cash outlay, followed by several years of positive cash flows. Each project will terminate and all assets will be liquidated in year 6. GHI’s WACC is 9%. Year Project 1 Project 2 Initial outlay $1,000,000 $500,000 1 $160,000 $120,000 2 $200,000 $120,000 3 $300,000 $120,000 4 $400,000...
1. Learning Objectives (a)  Develop proforma Project Income Statement Using Excel Spreadsheet (b)  Compute  Net Project Cash flows, NPV,  IRR...
1. Learning Objectives (a)  Develop proforma Project Income Statement Using Excel Spreadsheet (b)  Compute  Net Project Cash flows, NPV,  IRR and PayBack Period 1) Life Period of the Equipment = 4 years 8) Sales for first year (1) $     200,000 2) New equipment cost $          (200,000) 9) Sales increase per year 4% 3) Equipment ship & install cost $            (25,000) 10) Operating cost: $    (120,000) 4) Related start up cost $              (5,000)     (60 Percent of Sales) -60% 5) Inventory increase $             25,000 11) Depreciation (Straight Line)/YR $      (60,000) 6) Accounts Payable...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT