The tabular information of a certain engineering project is shown below. REVENUE AND COST ESTIMATES BD 60,000 BD 25,000 Capital investment Annual revenue Annual operating cost Salvage value Study period BD 9,000 BD 20,000 MARR 20% aluate the project using Future Worth (FW) method
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- The following table contains information about four projects in which Morales Corporation has the opportunity to invest. This information is based on estimates that different managers have prepared about their potential project. E (Click the icon to view the projects information.) Requirements 1. Rank the four projects in order of preference by using the a. net present value. d. payback period. 2. Which method(s) do you think is best for evaluating capital investment projects in general? Why? c. internal rate of return. b. project profitability index. e. accounting rate of return. Requirement 1. Rank the projects in order of preference. (a) (b) (c) (d) (e) Net Present Profitability Internal Rate Payback Accounting Rate Value Index of Return Period of Return 1st preferred A C 2nd preferred 3rd preferred C 4th preferred ADB D ABUsing the following two relationships: AW = CR + A of AOC CR = -P(A/P,i,n) + S(A/F,i,n) %3D Calculate the Annual Worth (AW) based on the data for the following project: Corporate MARR = 10% Initial Investment Cost $1,000,000 Anticipated Project Life = 10 years Salvage Value at the end of 10 years $100,000 Annual Cost of Operation %3D $50,000 10% Compound Interest FactorsNet present value method, present value index, and analysis for a service company First United Bank Inc. is evaluating three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows: Instructions 1. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each project. Use the present value table appearing in Exhibit 2 of this chapter. 2. Determine a present value index for each project. (Round to two decimal places.) 3. Which project offers the largest amount of present value per dollar of investment? Explain.
- Question #1a) What is a âtransfer price?âb) List and describe 3 main reasons for using transfer prices.Question #2Consider the following information about a potential project:Investment requiredExpected annual project revenueExpected annual project expensesRequired rate of returnCurrent division return on investment$3,000,000$6,000,000$5,550,00011%18%a) Calculate the projectâs return on investment.b) Based solely on ROI, is this project in the firmâs best interests? Why or why not?c) Is this project in the division managerâs best interests? Why or why not?d) Perform DuPont Analysis on this project.e) What is the projectâs residual income?Question #3List and describe five traits that can differentiate a customer that is relatively inexpensive to service from a customer that is relatively expensive to service.Question #4List and describe five actions a firm can take if a customer appears…Consider the following project-balance profiles for proposed investment projects, where the project-balance figures are rounded to the nearest dollar: (a) Compute the net present worth of each investment.(b) Determine the project balance at the end of period 2 for Project C ifA2 = $500.(c) Determine the cash flows for each project.(d) Identify the net future worth of each project.U3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows. Capital investment Annual net income: Total Year 1 (a) 2 Project Bono 3 4 Project Edge 5 Project Bono $160,000 14,000 Project Clayton 14,000 14,000 Click here to view the factor table. 14,000 14,000 $70,000 Project Edge Project Clayton $175,000 $200,000 18,000 17,000 16,000 12,000 9,000 $72,000 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) years 27,000 years 23,000 Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.) years 21,000 13,000 12,000 $96,000
- REQUIRED Study the information given below and calculate the Accounting Rate of Return on initial investment (expressed to two decimal places) of each project. INFORMATION The following data relate to two investment projects, only one of which may be selected: Project A Project B R R Initial capital expenditure 180 000 180 000 Net cash inflow per year: Year 1 90 000 36 000 Year 2 72 000 36 000 Year 3 54 000 86 000 Year 4 36 000 94 000 Expected scrap value (not included in the figures above) 36 000 0 Note: Depreciation is calculated using the straight-line The cost of capital is 15%. REQUIRED Use the capital asset pricing model to calculate the cost of the ordinary shares from the information provided below. INFORMATION The financial managers of Computex have…Calculate the profitability index for the below projects and indicate your order of choices. Project Present Value Investment A $145,000 $95,000 $135,000 $80,000 $175,000 $110,000 Select one: a. B, A and C b. A, C and B c. B, C and A d. C, B and A B сCompany A has provided figures for two investment projects, only one of which may be chosen. These are the calculations based on the figures: Payback Period The Accounting Rate of Return / Return on Capital Employed Net Present Value Project A 2 years 4 months 27.08% £63,705 Project B 2 years 7 months 39.47% £74.971 Analyse and provide recommendations as to what project needs to be chosen based on the calculations above.
- If a $300,000 investment has a project profitability index of 0.25, what is the netpresent value of the project?a. $75,000b. $225,000c. $25,000d. $275,000A firm has projected the following financials for a possible project: YEAR Sales Cost of Goods S&A Depreciation Investment in NWC Investment in Gross PPE 0 1,130.00 105,468.00 1 132,716.00 Submit 549.00 2 62,780.00 62,780.00 30,000.00 30,000.00 30,000.00 21,093.60 21,093.60 21,093.60 Answer format: Currency: Round to: 2 decimal places. 3 132,716.00 132,716.00 132,716.00 549.00 What is the NPV of the project? (Hint: Be careful about rounding the WACC here!) 4 62,780,00 62,780.00 62,780.00 30,000.00 549.00 21,093.60 549.00 5 132,716.00 The firm has a capital structure of 37.00% debt and 63.00% equity. The cost of debt is 9.00%, while the cost of equity is estimated at 15.00%. The tax rate facing the firm is 38.00%. (Assume that you can't recover the final NWC position in year 5. i.e. only consider the change in NWC for each year) 30,000.00 21,093.60 549.00Question Help Use the NPV method to determine whether Smith Products should invest in the following projects: Project A: Costs $270,000 and offers eight annual net cash inflows of $57,000. Smith Products requires an annual return of 14% on investments of this nature. Project B: Costs $390,000 and offers 10 annual net cash inflows of $74,000. Smith Products demands an annual return of 12% on investments of this nature. (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Caclulate the NPV (net present value) of each project. Begin by calculating the NPV of Project A. Project A: Net Cash Annuity PV Factor Present Years Inflow (i=14%, n=8) Value 1 - 8…