ABC Limited Company is looking to invest in aproject. The cost of that project is $60,000 and the cash inflows and outflows of the project for 5 years, are shown in Table 1 below. The company’s WACC is 7%. Years Cash InflowsCash Outflows0 (Initial Outlay) $60,000.001 $20,000.00 $5,000.002 $21,000.00 $2,000.003 $22,000.00 $2,000.004 $14,000.00 $2,000.005 $10,000.00 $1,000.00 Profitability Index (PI) ii. Net Present Value (NPV), and estimate the Internal Rate of Return (IRR) of the Project using the given interest rate and 9%.
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ABC Limited Company is looking to invest in aproject. The cost of that project is
$60,000 and the
Table 1 below. The company’s WACC is 7%.
Years
Cash
Inflows
Cash
Outflows
0 (Initial
Outlay) $60,000.00
1 $20,000.00 $5,000.00
2 $21,000.00 $2,000.00
3 $22,000.00 $2,000.00
4 $14,000.00 $2,000.00
5 $10,000.00 $1,000.00
Profitability Index (PI)
ii.
of the Project using the given interest rate and 9%.
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- Suppose your organization is deciding which of THREE projects to bid on. The information or each is in the Table 2 below. Assume that all up-front investments are not recovered, so the are shown as negative profits. Table 2: Three Projects Details Estimated Probability (P) Profits/Losses Project A 50% RM120,000 50% (RM50,000) Project B 30% RM100,000 40% RM50,000 30% (RM60,000) Project C 70% RM20,000 30% (RM5,000) Tasks: (a) Calculate the Expected Monetary Value (EMV) for each project. Then, insert all the detail: into the table. (b) Based on your result, explain on which projects you would bid. Be sure to use the EMV information and your personal risk tolerance to justify your answer.Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…7. Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual operating cost will be in direct proportion to the level of production at $8.50 per unit, and each unit of product can be sold for $50.00. If the project has a life of 7 years, what is the minimum annual production level for which this project is economically viable? Work this problem on an after-tax basis. Assume 5-year SL depreciation (SV5=0), MV7 = 0, an effective income tax rate of 40%, and an after-tax MARR of 10% per year.
- Answer all the following questions based on Table 2 (a) Feasibility studies for a project is an early study before the project begins. List and briefly explain the feasibility processes. (b) Walkers Corporation is analyzing three capital projects with expected cash flows given in the Table 2 below. Each cash flow with an estimated of five years life and four year life. Interest rate of the cash flows is 10 % per annum. The Walkers Corporation uses investment appraisal techniques which is Payback Method. Analyze the appropriate calculations under the investment techniques stated above and give reasons for your investment advice. Table 2 Year Projects / Cash Flow (RM) Delta Gamma Beta 0 (250,000) (450,000) (650,000) 1 60,000 110,000 150,000 2 60,000 130,000 150,000 3 60,000 160,000 150,000 4 60,000 190,000 150,000 5 60,000 - 150,000Based on the following payoff table, answer the following: High Medium Low 20 20 5 25 30 11 30 12 13 10 12 12 50 40 -28 Prior Probability 0.3 0.2 0.5 The maximin strategy is: Alternative A B C D E O E. O C. O A. OB. O D.Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000.An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount to 30% of salesrevenue.…
- 1. Following is the payoff table for the Pittsburgh Development Corporation (PDC) Condominium Project. Amounts are in millions of dollars.State of NatureDecision Alternative Strong Demand S1 Weak Demand S2Small complex, d1 8 7Medium complex, d2 15 3Large complex, d3 20 -82. Suppose PDC is optimistic about the potential for the luxury high-rise condominium complex and that this optimism leads to an initial subjective probability assessment of 0.83 that demand will be strong (S1) and a corresponding probability of 0.17 that demand will be weak (S2). Assume the decision alternative to build the large condominium complex was found to be optimal using the expected value approach. Also, a sensitivity analysis was conducted for the payoffs associated with this decision alternative. It was found that the large complex remained optimal as long as the payoff for the strong demand was greater than or equal to $17.25 million and as long as the payoff for the weak demand was greater than or equal…Based on the following payoff table, answer the following: High Medium Low 20 20 5 25 30 11 30 12 13. 10 12 12 50 40 -28 Prior Probability 0.3 0.2 0.5 The expected value of perfect information is: Alternative A B C D E O -28. O 0. O 23. O 19. O 10.5.Background: There are 3 investment projects faced by the ABC company. Given the decision tree, which project should ABC undertake? 0.17 $30,000 $3,20 0.2 $10,000 0.6 $-7,000 Project 1 $1,40 0.8 $2,000 Project 2 0.2 $-1,000 Project 3 $5,000 1000
- Nikos Anastopoulos of EMPROSS Strategic IT Consultants, leads the development of a new football stadium. He developed the activities, durations, and predecessor relationships in the following table for delivering company valuations. Activity A B C D E F G H 1 J K L ES ID EF ¤¯¯ SL SL LS Time LF Predecessor A, B C E F E D D, G, I 1 Duration in Weeks 5 3 8 3 4 10 8 18 20 7 5 10 6A. Draw the Network Diagram, and identify and discuss the project duration and the critical path using the following activity notationThe following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $15 or the product price is $25. Profit Project A P= $15 60 B -28 C 40 Using the maximax rule, the decision maker would choose... Multiple Choice A. B. P = $25 80 160 100 impossible to say from the information givenManager Cafe "Blue Sky" is considering investing 2 (two) projects. Project X is an investment of $ 75,000 to replace a working but outdated cooling equipment. Project Y is a $ 150,000 investment to expand the dining facilities. Relevant cash flow data for the two projects over the expected 2 years are as follows: Project X Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.16 $0 0.08 $0 0.66 $50000 0.82 $50000 0.18 $100000 0.10 $100000 Project Y Year 1 Year 2 Probability Cash Flow Probability Cash Flow 0.50 $0 0.13 $0 0.50 $200000 0.74 $100000 0.13 $200000 Calculate: Expected value, standard deviation, and coefficient of variation for cash flows from each project. Compute: Risk-adjusted NPV for each project using a cost of capital of 15% for riskier projects, and 12% cost of capital for less risky projects. Which project is more…