1. Questions

Finance

Question 1: You wish to start a project. Your initial investment is $100000. You generate 0 cash flows for the first 2 years but generate $16000 in year 3 and increase by 15% every year till year 7, after which time they decline by 2% until year 9. You expect 0 growth in cash flows beyond year 9, but expect to generate constant cash flows into the foreseeable future. If capital cost is 8% per year, find the NPV
ANSWER: Net Present Value=$168609.42

Question 2: You want to buy new machine and replace the existing machine, which you have used for the past 3 years. New machine costs $75000 and will be useful for 5 years after which can be sold to fetch salvage value of $9000. New machine will be depreciated straight-line to 0 over 5 years. Old machine was bought for $70000 and also depreciates straight-line to 0 over 5 years. Old machine can be sold today for $30000 but if you wait for 5 years, it will only worth $6500.
New machine is efficient. Annual savings in operating costs are $12000. Your net working capital requirement will decline annually by $4000. Tax rate is 35% and capital cost rate is 12%. Find the NPV
ANSWER: Net Present Value(replacing)=$9598.75

Please show me detailed step-by-step solutions. Thanks.

  1. 👍
  2. 👎
  3. 👁
  4. ℹ️
  5. 🚩
A

  1. An excel spreadsheet is very handy for these types of analyses. I'll do the first one, which should give you a process for working the second.

    First calculate the net present value for the cash flows for years 0 to 10.
    0 = -100000/(1.08^0) = -100000
    1 = 0
    2 = 0
    3 = 16000/(1.08^3) =
    4 = (16000*1.15)/(1.08^4)
    ....
    9 = 26875.93/(1.08^9)
    10 = 26875.93/(1.08^10)

    Now then year 10's PV flows forever, but declining by 8% per year. With this infinite expansion, the multiplier is simply 1/.08 = 12.5

    So, years 11 and beyond = (PV in year 10)*12.5

    Sum the PV's for years 0 to 11+ and you should get 168609.42

    1. 👍
    2. 👎
    3. ℹ️
    4. 🚩
    economyst

Respond to this Question

First Name

Your Response

Similar Questions

  1. Algebra

    Following the birth of a​ child, a parent wants to make an initial investment P 0 that will grow to ​$70,000 for the​ child's education at age 19. Interest is compounded continuously at 6​%. What should the initial

  2. Algebra

    A financier plans to invest up to $500,000 in two projects. Project A yields a return of 11% on the investment of x dollars, whereas Project B yields a return of 16% on the investment of y dollars. Because the investment in

  3. smith

    (make a cash flow diagram) A project your firm is considering for implementation has these estimated costs and revenues: an investment cost of $50,000; maintenance costs that start at $5,000 at the end of year (EOY) 1 and increase

  4. exponential function

    An investment pays 8% interest, compounded annually. a) write an equation that expresses the amount, A, of the investment as a function of time, t, in years. b) determine how long it will take for this investment to double in

  1. Physics

    A Pratt and whitney PW4000 turbofan engine is able to provide a maximum thrust of 2.49 x 100000 N.A Boeing 747-400 airliner has four of these engines. If its mass is 2.72 x 100000 kg, what is its acceleration?

  2. Algebra please help

    An initial investment of $3,000 earns 7% interest compounded continuously. What will the investment be worth in 19 years? (Round your answer to the nearest cent.)

  3. Marketing, Business

    Southern Alliance Company needs to raise $25 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital

  4. Corprate Finance

    An initial investment of $400,000 will produce an end of year cash flow of $480,000. What is the NPV of the project at a discount rate of 20%?

  1. Pre Cal 12

    At what rate of interest would an investment have to be paid for an initial $900 to grow into $1400 in 12 years if the investment was compounded quarterly?

  2. finance

    Suppose an investment will cost $90,000 initially and will generate the following cash flows: • Year 1: 132,000 • Year 2: 100,000 • Year 3: -150,000 • The required return is 15%. • Should we accept or reject the project?

  3. finance

    Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $15,000 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $7,000 and $12,000 at the end of Years 1

  4. mathematics

    1. rounding off 321409 to the nearest 100000 2. rounding off 6823617 to the nearest 100000 3. rounding off 13415978 to the nearest 100000 4. rounding off 28469241 to the nearest 100000 5. rounding off 976315463 to the nearest

View more similar questions or ask a new question.