A $40,000 increase in working capital will be needed for this investment project. The machinery will also need a $35,000 overhaul at the end of year 6. The machinery will cost $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000 at the end of 10 years. Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo which will require the purchase of new mixing machinery.If Big Blue has a required rate of return of 14%, determine which, if any, of the three projects is acceptable. Project III would require a cash outlay of $10,000 now and would provide a cash inflow of $30,000 eight years from now. Project II would require cash outlays of $3,000 per year and would provide a cash inflow of $30,000 at the end of 8 years. Project I would require an immediate cash outlay of $10,000 and would result in cash savings of $3,000 each year for 8 years. is considering three investment opportunities having cash flows as described below: Instead of purchasing the preferred stock, Sarver could have invested the funds in a money market certificate yielding a 16% rate of return.ĭetermine whether or not the preferred stock provided at least the 16% rate of return that could have been received on the money market certificate. Sarver received dividends on the stock each year for five years, and finally sold the stock for $90 per share. Five years ago, Joe Sarver purchased 600 shares of 9%, $100 par value preferred stock for $75 per share.The working capital will be released for use elsewhere at the conclusion of the project. The following data concern an investment project:.(b.) Should the City of Paranoya purchase the new system or keep the old system? (a.) What is the City of Paranoya’s net present value for the decision described above? Use the total cost approach. The manager assembled the following information to use in the decision as to which system is more desirable:
Tranter inc.is considering a project upgrade#
The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The rep also told the manager that the company would give the city $10,000 in trade on the old system. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E.(c.) Compute the project’s simple rate of return. (b.) Compute the project’s payback period. (a.) Compute the project’s net present value. The company’s required rate of return is 12%. The project would provide net operating income each year as follows:Īll of the above items, except for depreciation, represent cash flows. At the end of ten years, the project would terminate and the equipment would have no salvage value. Tranter, Inc., is considering a project that would have a ten-year life and would require a $1,500,000 investment in equipment.Projet CostĬompute the project’s internal rate of return to the nearest whole percent. Omit the “%” sign in your response.)Ī Compute the project’s net present value. (Round your final answer to the nearest whole percent. (Round your answer to 1 decimal place.)Ĭompute the project’s simple rate of return. Omit the “%” sign in your response.)Ĭompute the project’s payback period. (Round discount factor(s) to 3 decimal places and final answer to the nearest whole percent. Omit the “$” sign in your response.)Ĭompute the project’s internal rate of return to the nearest whole percent. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. (Negative amount should be indicated by a minus sign. The company’s required rate of return is 10%.Ĭompute the project’s net present value. The project would provide net operating income each year as follows: (Ignore income taxes.)Ĭlick here to view Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.Īll of the above items, except for depreciation, represent cash flows. At the end of nine years, the project would terminate and the equipment would have no salvage value. Tranter, Inc., is considering a project that would have a nine-year life and would require a $3,360,000 investment in equipment.
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