Question

Cold One Brewery is considering a project that has an initial after-tax outlay or after tax...

Cold One Brewery is considering a project that has an initial after-tax outlay or after tax cost of $700,000. The respective future cash inflow’s from this four-year project for years 1 through 4 are: $195,000, $168,000, $230,000, $280,000, respectively. Cold one has a cost of capital of 11%. Will cold one accept this project?

  1. Rejects this project because because NPV is below $-100,000

  2. Rejects this project because the NPVis between -$20,000 and -$50,000

  3. Accepts this project because the NPV is greater than the IRR

  4. Accepts this project because the NPV is between $10,000 and $40,000

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Discount rate 11.000%
Year 0 1 2 3 4
Cash flow stream -700000 195000 168000 230000 280000
Discounting factor 1.000 1.110 1.232 1.368 1.518
Discounted cash flows project -700000.000 175675.676 136352.569 168174.018 184444.673
NPV = Sum of discounted cash flows
NPV Project = -35353.07
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor

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
1. Consider the following three-year project. The initial after-tax outlay or after-tax cost is $1,500,000. The...
1. Consider the following three-year project. The initial after-tax outlay or after-tax cost is $1,500,000. The future after-tax cash inflows for years 1, 2, 3 and 4 are: $800,000, $800,000, $300,000 and $100,000, respectively. What is the payback period without discounting cash flows? a. 1.875 years b. 2.0 years c. 3.5 years d. 4.125 years 2. Carvic, Inc. is considering a four-year project that has an initial outlay or cost of $100,000. The respective future cash inflows from its project...
Flynn, Inc. is considering a four-year project that has an initial after-tax outlay or after-tax cost...
Flynn, Inc. is considering a four-year project that has an initial after-tax outlay or after-tax cost of $80,000. The future after-tax cash inflows from its project for years one, two, three, and four are $40,000, $40,000, $30,000, and $30,000, respectively. Flynn uses the internal rate of return method to evaluate projects. What is the approximate IRR for this project? The IRR is less than 12%. The IRR is between 12% and 20%. The IRR is about 24.55%. The IRR is...
Alcan, Inc. is considering a project that has an initial outlay or cost of $220,000. The...
Alcan, Inc. is considering a project that has an initial outlay or cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000, and $80,000, respectively. Alcan uses the internal rate of return method to evaluate projects. Will Alcan accept the project if its hurdle rate is 12%? Alcan will not accept this project because its IRR is about 7.63%. Alcan will not accept this project because its IRR is...
A company s considering a project which requires the initial outlay of $300,000 which includes both...
A company s considering a project which requires the initial outlay of $300,000 which includes both an after-tax salvage from the old asset of $12,000 and an additional working capital investment of $8,000. The 12-year project is expected to generate annual incremental cash flows of $54,000 and have an expected terminal value at the end of the project of $20,000. The cost of capital is 15 percent, and the company's marginal tax rate is 40 percent. Calculate the net present...
A is considering the investment in a project that has an initial cash outlay followed by...
A is considering the investment in a project that has an initial cash outlay followed by a series of net cash inflows. The business applied the NPV and IRR methods to evaluate the proposal but, after the evaluation had been undertaken, it was found that the correct cost of capital figure was lower than that used in the evaluation. What will be the effect of correcting for this error on the NPV and IRR figures? Effect on NPV IRR a)...
Assume that a firm can invest an initial outlay of $100,000 in a 10-year project that...
Assume that a firm can invest an initial outlay of $100,000 in a 10-year project that yields EBITDA of $22,000 per year. The firm’s tax rate is 40% and the cost of capital is 12%. a. Calculate the NPV of the project using the straight line method of depreciation for tax purposes. Should the firm accept the project? b. Calculate the NPV of the project using the sum-of-years-digits accelerated depreciation method for tax purposes. (You may have to look up...
A firm has the following investment alternatives. A firm has the following investment alternatives. Year    Project...
A firm has the following investment alternatives. A firm has the following investment alternatives. Year    Project A        Project B Cash Flow       Cash Flow               0        -$100,000        -$100,000   1            50,000              10,000   2            40,000              30,000   3            30,000              40,000   4            10,000              60,000 The firm's cost of capital is 7%. Project A and project B are mutually exclusive. Which investment(s) should the firm make? Project A because it has the higher IRR Project A because it has the higher NPV Neither because both have IRRs less than the cost of capital Project B...
You are considering a project that will require an initial outlay of $54,200. This project has...
You are considering a project that will require an initial outlay of $54,200. This project has an expected life of 5 years and will generate after-tax flows to the company as a whole of $20,608 at the end of each year over its 5-year life. In addition to the $20, 608 cash flow from operations during the fifth and final year, there will be an additional cash outflow of $23,608 at the end of the fifth and final year associated...
A firm is considering a replacement project which requires the initial outlay of $300,000 which includes...
A firm is considering a replacement project which requires the initial outlay of $300,000 which includes both an after-tax salvage from the old asset of $12,000 and an additional working capital investment of $8,000. The 12-year project is expected to generate annual incremental cash flows of $54,000 and have an expected terminal value at the end of the project of $20,000. The cost of capital is 15 percent, and its marginal tax rate is 40 percent. Calculate the net present...
FINA Inc. considers a project with the following information: Initial Outlay: 1,500 After-tax cash flows: Year...
FINA Inc. considers a project with the following information: Initial Outlay: 1,500 After-tax cash flows: Year 1: -$100 Year 2: $1000 Year 3: $700 FINA’s assets are $500 million, financed through bank loans, bonds, preferred stocks, and common stocks. The amounts are as follows: Bank loans: $ 100 million borrowed at 10% Bonds: $180 million, paying 9% coupon with quarterly payments, and maturity of 5 years. FINA sold its $1,000 par-value bonds for $1,070 and had to incur $20 flotation...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT