Question

QUESTION 6

A new computer system is expected to cost $40 million and
generate annual savings of $12 million over the next five
years.

Should the bank invest in this project if the discount rate is 12
percent?

Yes, because the net present value of the project is $3,257,314. |
||

No, because the net present value of the project is -$3,257,314. |
||

Yes, because the net present value of the project is $20 million. |
||

No, because the net present value of the project is -$20 million. |
||

Yes, because the net present value of the project is $4,980,000. |

Answer #1

PV of annuity for making pthly payment | |||

P = PMT x (((1-(1 + r) ^- n)) / i) | |||

Where: | |||

P = the present value of an annuity stream | |||

PMT = the dollar amount of each annuity payment | |||

r = the effective interest rate (also known as the discount rate) | |||

i=nominal Interest rate | |||

n = the number of periods in which payments will be made | |||

PV of cash inflow over 5 years | = 12* (((1-(1 + 12%) ^- 5)) / 12%) | ||

43.257314 | |||

PV of cash outflow | (40.000000) | ||

Net Present Value | 3.257314 | ||

Yes, Project should be accepted as this will generate NPV of 3,257,314 | |||

Hanover Industries is evaluating an investment in new
computer system with a cost of $75,000 and a useful life of four
years with no salvage value. The company’s desired rate of return
is 14 percent. The computer system is expected to generate the
following net cash inflows for each of the next four
years:
Year 1
$15,000
Year 2
$25,000
Year 3
$30.000
Year 4
$32,000
Required:
Determine the net present value of the investment in the
new computer system....

Blossom Corp. management is investigating two computer systems.
The Alpha 8300 costs $2,785,525 and will generate cost savings of
$1,495,025 in each of the next five years. The Beta 2100 system
costs $3,841,500 and will produce cost savings of $1,120,750 in the
first three years and then $2 million for the next two years. The
company’s discount rate for similar projects is 14 percent. What is
the NPV of each system?
NPV of Alpha system
NPV of Beta system

2. Kermit is considering purchasing a new computer system. The
purchase price is $107918. Kermit will borrow one-fourth of the
purchase price from a bank at 10 percent per year compounded
annually. The loan is to be repaid using equal annual payments over
a 3-year period. The computer system is expected to last 5 years
and has a salvage value of $7937 at that time. Over the 5-year
period, Kermit expects to pay a technician $20,000 per year to
maintain...

Kyoto Company is in the process of constructing a new plant at a
cost of $30 million. It expects the project to generate cash flows
of $13,000,000, $23,000,000, and 29,000,000 over the next three
years. The cost of capital is 20 percent. What is the net present
value of this project? (Round to the nearest million dollars.)
Select one:
A. $10 million
B. $12 million
C. $14 million
D. $16 million

Question 13 1 pts
Your company is considering purchasing a new system that costs
$200,500. This cost will be depreciated straight-line to zero over
the project's five-year life, at the end of which the system is
expected to be sold for $35,000 cash. The system will save the firm
$110,400 per year in pretax operating costs. What is the after-tax
cost saving per year associated with the new system? The tax rate
is 21%.
$40,100
$87,216
$110,400
$23,184
Question 14...

Question 47
A company is considering a new inventory system that will cost
$120,000. The system is expected to generate positive cash flows
over the next four years in the amounts of $35,000 in year 1,
$55,000 in year 2, $65,000 in year 3, and $40,000 in year 4. The
firm’s required rate of return is 9%. What is the payback period of
this project?
a. 1.95 years
b. 2.46 years
c. 2.99 years
d. 3.10 years
Question 48
Based...

Model 99 Hotels is considering the construction of a new hotel
for $80 million. The expected life of the hotel is 20 years with no
residual value. The hotel is expected to earn revenues of $15
million per year. Total expenses, including straight-line
depreciation, are expected to be $6 million per year. Model 99
management has set a minimum acceptable rate of return of 10%.
1. Determine the equal annual net cash flows
from operating the hotel.
$ 13 million...

Please answer question 2
1. The initial cost of constructing a permanent dam (i.e., a dam
that is expected to last forever) is $830 million. The annual net
benefits will depend on the amount of rainfall: $36 million in a
“dry” year, $58 million in a “wet” year, and $104 million in a
“flood” year. Meteorological records indicate that over the last
100 years there have been 86 “dry” years, 12 “wet” years, and 2
“flood” years. Assume the annual...

Sauer Food Company has decided to buy a new computer system with
an expected life of three years. The cost is $420,000. The company
can borrow $420,000 for three years at 12 percent annual interest
or for one year at 10 percent annual interest. Assume interest is
paid in full at the end of each year.
a. How much would Sauer Food Company save in interest over the
three-year life of the computer system if the one-year loan is
utilized...

Champlain Corp. management is investigating two computer
systems. The Alpha 8300 costs $2,761,825 and will generate cost
savings of $1,186,025 in each of the next five years. The Beta 2100
system costs $4,207,500 and will produce cost savings of $1,217,750
in the first three years and then $2 million for the next two
years. If the company’s discount rate for similar projects is 14
percent:
What is the NPV for the two systems? (Enter negative
amounts using negative sign, e.g....

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 13 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago