28. A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs. 10,000 ( with no salvage value ) and a life of 5 years the company required rate of return is 10 % and it pays tax at a rate of 50 % . The project will be depreciated on a straight-line basis. The cash flows (before depreciation& taxes ) expected to be generated by the projects as follows. 2 3 4,000 4,000 3,000 2,000 4 4,000 5,000 Project A 4,000 Project B 6,000 Calculate the net present value & IRR of each project & suggest which project should be accepted & why. 4,000 5,000
Q: Giant Shipping Ltd is considering to invest in one of the two following projects to buy a new…
A: Profitability Index = Present Value of future cashflow/Initial Investment Payback Period = Years…
Q: a company is considering two mutually exclusive projects. Both require an initial cash outlay of…
A: Details under question: Initial Investment = 20,000 each Required Return = 10% Tax Rate = 35%…
Q: Baird Bros. Construction is considering the purchase of a machine at a cost of $202,000. The machine…
A: Answer a) Calculation of Net Present Value of Cash Flows Net Present Value = Present value of cash…
Q: BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The project has an…
A: Average rate of return = Average annual income / Average investment Average annual income = Total…
Q: A man invests in a project that requires a fixed capital of P 2.5 M with no salvage, and life of 12…
A: Here, Initial Investment is P2,500,000 Salvage Value is 0 Life is 12 years Annual Maintenance Cost…
Q: Consider the previous question with the following details: A company is considering a project that…
A: In the project evaluation using the discounted payback period, we should compute the present value…
Q: Osler Company is considering an investment with the following data: Initial cost $200,000…
A: Initial cost = $ 200,000 Annual cash inflow = $ 25000 Years = 10 Years Required rate of return = 4%…
Q: SellFridges is estimating the terminal cash flow associated with an investment project. The proposed…
A: Here, Machine costs = $100,000 Installation costs = $20,000 Useful life = 5 years Salvage value =…
Q: June Co. is evaluating a project requiring a capital expenditure of $620,000. The project has an…
A: (a) Average rate of return = Average net income/Average investment x 100 = 37,500/310,000…
Q: Compute the net present value of each project. (Enter negative amounts using either a negative sign…
A: Payback period is the time period it takes for company to recover the amount invested in the…
Q: XYZ Company Ltd wants to invest Tk. 5 lacs in a new project. The duration of the project is 5 Years.…
A: Investment in new project = 500,000 Time period = 5 years Tax rate = 40% Cost of capital = 8%
Q: 9. Pate Company is evaluating a project requiring an initial capital expenditure of S806,250. The…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Investapp Ltd is considering whether to undertake one of two mutually exclusive projects, each of…
A: Net present value = Present value of cash inflows - present value of cash out flows Payback…
Q: A 5-yr project has an initial requirement of $100,415 for new equipment and $8,944 for net working…
A: Calculation of Net Present Value:The net present value is $185,513.41.Excel Spreadsheet:
Q: A man invests in a project that requires a fixed capital of P 2.5 M with no salvage, and life of 12…
A: Fixed Capital is of P2.5 million Life of project is 12 years Estmated maintenance cost is of…
Q: A man invests in a project that requires a fixed capital of P 2.5 M with no salvage, and life of 12…
A: Initial Investment = P2,500,000 Salvage Value = 0 Time Period = 12 years Annual Maintenance Cost =…
Q: Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment.…
A: The profitability index is the ratio of the present value of all the cash inflows and cash outflows.…
Q: Bunnings Ltd is considering to investin one of the two following projects to buy a new equipment.…
A: Profitability Index and Discounted Payback Period can be calculated as follows:
Q: the rate of return
A: The rate of return refers to the earnings on the investment invested by the investors. The higher…
Q: Maria Corporation Limited(MCL) is interested to invest in a project. The initial cost of the project…
A: Part 1: The computation of operating cash flows of the project by computing net income, adding…
Q: (6) Hayden Company is considering the acquisition of a machine that costs $500,000. The machine is…
A: The Company is considering the acquisition of a machine that costs $500,000. The machine is expected…
Q: 23. A company is considering two mutually exclusive projects. Both require an initial cash outlay of…
A: The NPV(net present value) and IRR are the values determined for comparing the available projects…
Q: Your Company is considering a new project that will require $2,000,000 of new equipment at the start…
A: Solution:- Depreciation is a tax deductible expense and therefore companies get tax shield on…
Q: Don Adams Breweries is considering an expansion project with an investment of P1,500,000. The…
A: Solution: Initial investment = P1,500,000 Annual cash inflows = P450,000 Period = 5 Years
Q: 10- In a capital project, an old machine, which was purchased at a cost of 600.000 TL 3 years ago…
A: Depreciation for 1st year = (600,000 - X) * 5/5+4+3+2+1…
Q: 9. The Lumber Yard is considering a 5-year project that requires initial investment of $96,000 in…
A: We’ll answer the first question since the exact one wasn’tspecified. Please submit a new question…
Q: 49.) Kore Industries is analyzing a capital investment proposal for new equipment to produce a…
A: Savings of tax = [(tax basis - salvage value) + cost to remove] x tax rate = [(75000-10000) + 40000]…
Q: 3. An investment of $500,000 generates an annual income of$150,000 over the next4 years with a…
A: Present worth is an equivalence method of analysis in which estimated cash flows are discounted…
Q: Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a…
A: Given information: Initial cost of Project 1 is -$175,000 Initial cost of Project 2 is -$185,000…
Q: 10. Tam Co. is negotiating for the purchase of equipment that would cost P100,000 with the…
A: Please refer to the image below
Q: Marie's Fashions is considering a.9 project that will require $ 39,000 in net working capital and $…
A: Operating cash flow refers to the cash generated by the core operations of the business.
Q: . A project capitalized for ₱150,000 invested in depreciable assets will earn a uniform, annual…
A: Workings Computation of annual cash outflow:- Year Operation & maintenance Taxes &…
Q: assume there is no option to delay or abandon the project. Instead, if the tax is not imposed, the…
A: Net present value: This is one of the techniques in capital budgeting in financial management. Under…
Q: A company is considering two mutually exclusive projects. Both require an initial cash outlay of…
A: Details and inputs under the question: Initial Investment = 20,000 each Required Return = 10% Tax…
Q: Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment.…
A: Profitability index Profitability index is an capital budgeting tool calculated by dividing present…
Q: Bunnings Ltd is considering to investin one of the two following projects to buy a new equipment.…
A: Discounted Payback Period is one of the capital budgeting techniques. This technique of capital…
Q: Machinery Ltd is considering to invest in one of the two following Projects to buy a newequipment.…
A: Net present value is the value of an asset which takes investment made into account before…
Q: At the end of a capital project the equipment has been fully depreciated and is sold for $30,000.…
A: Terminal cashflow is the cashflow at the end of the project. It has two components sale price of the…
Q: Machinery Ltd is considering to invest in one of the two following Projects to buy a newequipment.…
A: Net Present Value (NPV) is a capital budgeting technique which uses a discount rate to bring all the…
Q: 8. A firm is considering a project requiring an investment of $27,000. The project would generate an…
A: Given: Initial investment = $27,000 Cash inflows = $6,296 Years = 7
Q: 3. A project requires an initial investment of $1,000,000 and generates annual income of $300,000…
A: Depreciation Accounting is the method of debiting the cost of an asset and crediting it to a…
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
- A company is considering a 3-year project with a projected net income of sh. 4M, 6M,5M in year 1, year 2 and year 3 respectively. The initial investment is sh. 40M and the salvage value is sh.2M.The company applies the straight line method for depreciating its assets, what is the Accounting Rate of Return? Assume a tax rate of 30% Select one: A. 26.3% B. 23.8% C.25% D. None of the aboveA company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs 10,000 each, and have a life of five years. The company’s required rate of return is 10 per cent and pays tax at a 50 per cent rate. The projects will be depreciated on a straight –line basis. The before taxes cash flows expected to be generated by the projects are as follows:ProjectBefore –tax Cash Flow (Rs)1 2 3 4 5A 4,000 4,000 4,000 4,000 4,000B 6,000 3,000 2,000 5,000 5,000Calculate for each project: 1. The payback2. The average rate of return3. The net present value and profitability index4. The internal rate of return .Which project should be accepted and why?Part B: Solve the following excersises: 1. A company is considering two mutually exclusive projects X and Y. Each require an initial investment of OMR 100,000.The after tax cash inflows associated with each project are as follows: Year Project X Cash flows Project Y Cash flows (Initial Investment) 120,000 120,000 25,000 20,000 2 ? ? 3 ? ? ? ? 5 ? ? (a) Complete the table where Payback period for Project X is 3.5 and for project Y is 4. (b) Which project is better?
- 3. Baboki Ltd are planning to invest in a new project which will cost an initial P375 000 and they expect the following cash.Year Net Cash Profits (P)1 25 0002 55 0003 70 0004 80 0005 40 0006 30 000The investment will be depreciated to a scrap value of P175, 000 over the period of the project. Required: Calculate the Accounting Rate of Return (Return on Capital Employed) of the project.1.) A project is estimated to cost P100,000, lasts 8 years and have a P10,000 salvage value. The annual gross income is expected to average P24,000, and annual expenses, excluding depreciation will total P6,000. If capital is earning 10% before income tax, determine if this is a desirable investment using A.) Rate of Return Method and B.) Annual Cost or Worth Method. II. Gradients (Shows solutions manually): 2.) The year-end operating and maintenance costs of a certain machine are estimated to be P12,000 the first year and to increase by P2,500 each year during its 4-year life. If capital is worth 12%, determine the equivalent uniform year-end costs. 3.) Annual maintenance costs for an equipment are P1,500 this year and are estimated to increase 10% each year every year. What is the present worth of maintenance cost for six years if i = 12%A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs.20000 each and have a life of five years. The company’s required rate of return is 10% and pays tax at a 35% rate. The projects with be depreciated on a straight-line basis. The before taxes cash flows expected to be generated by the projects are as follows. Before-tax cash flows (Rs.) Project1 2 3 45 A 8000 8000 8000 8000 8000B 12000 6000 4000 10000 10000 calculate for each project. The NPV and the internal rate of return. Which project should be accepted and why.
- 8. An investment opportunity requires an initial cash outlay of £30,000. Cash flows are expected to be as follows: Year 1 Year 2 Year 3 Year 4 (£7,000) (£2,000) £13,000 £36,000 The company’s cost of capital is 9%. Depreciation is to be charged annually on a straight line basis over the life of the project. What is the NPV of the project? a. (£2,579) b. £27,421 c. £2,579 d. (27,421)QUESTION 2 Consider two mutually exclusive projects – Project X and Project Y with identical initial outlays of RM90,000 and depreciable lives of 5 years. Project X is expected to produce free cash flows of RM32,787 each year. Project Y is expected to generate a single after-tax net cash flow of RM223,880 in year 5. The cost of capital is 15 percent. Required: (a) Calculate the net present value for each project. (b) Determine the internal rate of return for each project. (c) Compute the payback period for each project. (d) In a situation where there is capital rationing, calculate the profitability index (PI) for both projects and rank them accordingly. Based on your PI calculations above, identify the problems you foresee in selecting one of the projects. Select the best project based on Capital Budgeting Valuation Techniques above.19.Sunshine Love Company is considering two mutually exclusive project, one with a 4-year life and the other 6-year life. The after-tax cash flows from the two project are as follows: Project A (RM) |(400,000) Project B (RM) (400,000) Year 1 162,000 120,000 162,000 162,000 120,000 120,000 4 120,000 120,000 Assuming a 15 % required rate of return on both project, calculate each project's
- A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs.20000 each, and have a life of five years. The company's required rate of return is 10% and pays tax at a 35% rate. The projects with be depreciated on a straight-line basis. The before taxes cash flows expected to be generated by the projects are as follows. Before-tax cash flows (Rs.) Project 1 2 3 4 5 A 8000 8000 8000 8000 8000B 12000 6000 4000 10000 10000 calcualte for each project: The NPV and the internal rate of return. Which project should be accepted and why.UESTION 2 Consider two mutually exclusive projects – Project X and Project Y with identical initial outlays of RM90,000 and depreciable lives of 5 years. Project X is expected to produce free cash flows of RM32,787 each year. Project Y is expected to generate a single after-tax net cash flow of RM223,880 in year 5. The cost of capital is 15 percent. Required: (a) Calculate the net present value for each project. (b) Determine the internal rate of return for each project. (c) Compute the payback period for each project. (d) In a situation where there is capital rationing, calculate the profitability index (PI) for both projects and rank them accordingly. Based on your PI calculations above, identify the problems you foresee in selecting one of the projects. Select the best project based on Capital Budgeting Valuation Techniques above.Q. A project requires an initial investment in machinery of $400,000. Additional cash inflows of $150,000 at current price levels are expected for three years, at the end of which time the machinery will be scrapped. The machinery will attract tax-allowable depreciation of 30% on the RB basis, which can be claimed against taxable profits of the current year, which is soon to end. A balancing charge or allowance will arise on disposal. The tax rate is 40% and tax is payable 50% in the current year, 50% one year in arrears. The pre-tax cost of capital is 22% and the rate of inflation is 10%. Assume that the project is 100% debt financed. Required Assess whether the project should be undertaken.