a. Using the above information, compute the Net Present Value (NPV) if the company delayed the project for 1 year. b. Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios (after 1 year) are as follows: high (20%), medium (48%), and low (32%)? c. From your answers in (a) and (b) above, what conclusion can be derived, and why?
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- A venture capital investment group received a proposal from Wireless Solutions to produce a new smartphone. The variable cost per unit is estimated at $250, the sales price would be set at twice the VC/unit, fixed costs are estimated at $750,000, and the investors will put up the funds if the project is likely to have an operating income of $500,000 or more. What would sales volume (units) be required to meet this profit goal?Two new software projects are proposed to a young, start-up company. The Delta project will cost $150,000 to develop and is expected to have annual net cash flow of $40,000. The Echo project will cost $200,000 to develop and is expected to have annual net cash flow of $50,000. The company is very concerned about their cash flow. Using the payback period, which project is better from a cash flow standpoint? Why? Present the payback period for each project. Use this formula: Payback period = Investment/Annual Savingsou are considering setting up a firm to produce widgets. The cost of the project is $30 today. The demand for widgets is uncertain. It can be either high or low with equal probability. When the demand is high, cash flows in t = 1 are $66 and when the demand is low, cash flows in t = 1 are $34. The discount rate is 10%. What is the NPV of the project? Suppose you can commission a study that tells you whether the demand for widgets will be high or low. The study takes one year to complete. That is, if you commission the study you must decide in t = 1 whether to invest. If you invest the cash flows will arrive in t = 2. What is the maximum amount you are willing to pay for the study today?
- Two new software projects are proposed to a young, start-up company. The Alpha project will cost $320,000 to develop and is expected to have annual net cash flow of $40,000. The Beta project will cost $115,000 to develop and is expected to have annual net cash flow of $11,000. The company is very concerned about their cash flow.Calculate the payback period for each project. Which project is better from a cash flow standpoint. (Round your answers to 2 decimal places.)Payback period for project Alpha8 yearsPayback period for project Beta10.45 yearsAs the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GHC100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk- free rate of return is 8%. Year (100,000) 20,000 2 25,000 32,000 35,000 3 4 i. Using the CAPM approach, what is the cost of equity on this project? ii. Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank niners: Godfred A. Bokpin, Adom Frimpong, Vera Fiador & Lordina Amoah, Page 3 of loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt? ii. What will be the weighted average cost of capital…As the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GH₵100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk-free rate of return is 8%. Year ₵ 0 (100,000) 1 20,000 2 25,000 3 32,000 4 35,000 What will be the weighted average cost of capital (WACC)?
- As the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GH₵100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk-free rate of return is 8%. Year ₵ 0 (100,000) 1 20,000 2 25,000 3 32,000 4 35,000 i. Using the CAPM approach, what is the cost of equity on this project? ii. Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt? iii. What will be the weighted average cost of capital (WACC)?iv. Using the WACC computed in (c), what will be the NPV of the…As the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GH₵100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk-free rate of return is 8%. Year ₵ 0 (100,000) 1 20,000 2 25,000 3 32,000 4 35,000 Compute the IRR for the project?As the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GH₵100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk-free rate of return is 8%.Year₵ 0(100,000) 120,000 225,000 332,000 435,000 Using the CAPM approach, what is the cost of equity on this project?Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt? What will be the weighted average cost of capital (WACC)? Using the WACC computed in (c), what will be the NPV of the investment? `…
- You are considering investing in a project related to a new product opportunity. If you undertake the project immediately, you calculate the NPV will be $165,000. If you postpone the decision for one year, you will learn more about the relevant manufacturing process as well as the market for your product. If you wait one year, you expect with 80 percent likelihood competitors will enter the market and your NPV (in one year) will be - $20,000. With 20 percent likelihood, you will be the only market player and you will improve your production technology to create an NPV (in one year) of $400,000. The appropriate discount rate is 11 percent. Required: Calculate the expected NPV if you defer the project for one year, regardless of the potential scenario. Calculate the expected NPV if you strategically decide how to undertake your project. That is, if we find that competitors enter the market, we can decide not to enter. Interpret the difference in your answers to parts 1 and 2.Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the introduction of a "weight loss" smoothie. The project would require a $4 million investment outlay today (t = 0). The after-tax cash flows would depend on whether the weight loss smoothie is well received by consumers. There is a 30% chance that demand will be good, in which case the project will produce after-tax cash flows of $2 million at the end of each of the next 3 years. There is a 70% chance that demand will be poor, in which case the after-tax cash flows will be $1 million for 3 years. The project is riskier than the firm's other projects, so it has a WACC of 12%. The firm will know if the project is successful after receiving first year's cash flows. After receiving the first year's cash flows it will have the option to abandon the project. If the firm decides to abandon the project the company will not receive any cash flows after t = 1 , but it will be able to sell the assets…EnergyCell, Inc. has a proposal from the Engineering Planning Division to invest in the design, testing, and development of the next generation of smart grids useful in the Internet of Things (loT) environment. The initial investment projection is $450370 in year 0, $173662 in year 2, and $23085 in years 11 and beyond. At i = 8% per year, calculate the infinite-life equivalent annual cost in years 0 through infinity of the proposal. Select one: a. $56486 b. $52507 c. $44389 d. $54290 e. $574659