QUESTION 1The accounts manager of VM Gym & Sports has been asked to evaluate a potential capitalinvestment of a set of rowing machines. The following data is available for cach project:Machine 1Machine 2RMRMCost (immediate outlay)500,000245,000Expected annual profits (losses)Year 1I.80,00084,000Year 290,000136,000Year 3116,000126,000Year 4146,000150,000Annual running costs30,00024,000Annual service costs36,00020,000Estimated residual value equipment40,00030,000*The total annial running and service costs for Machine 2 in the first year is RM 36,000The committee has estimated a cost of capital of 30% and employs the straight-line methodof depreciation for all fixed assets when calculating net profit. The following discount factorsare given:YearCost of capital10%50%0.9090.6672.0.8260.4443.0.7510.2964.0.6830.198 (a)Calculate for each project:i. The net present valueii. The intermal rate of return(b)Recommend the decision to be made based on the calculations in (a).(c)State any assumptions you have made in your calculations.

Since in the given case the IRR is higher in machine 1 so it is to be selected. Assumptions: We…

Answered: i. The net present value ii. The…

Business

Finance

i. The net present value ii. The internal rate of return commend the decision to be made

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Using the provided information calculate the NPV Mkhize Ltd is considering buying a machine and has presented the following information; Purchase price Expected economic life Minimum required rate of return Net cash inflows Rate of taxation Depreciation is calculated using the straight-line method A. Positive R12,883 B. Negative R9,086 OC. Positive R10,089 OD. Negative R988 R130 000 10 years 12% R25000 30%
Dogwood Company is considering a capital investment in machinery: (Click the icon to view the data.) 8. Calculate the payback. 9. Calculate the ARR. Round the percentage to two decimal places. 10. Based on your answers to the above questions, should Dogwood invest in the machinery? 8. Calculate the payback. Amount invested Expected annual net cash inflow Payback 1,500,000 24 500,000 3 years 9. Calculate the ARR. Round the percentage to two decimal places. Average annual operating income Average amount invested ARR Data Table Initial investment $ 1,500,000 Residual value 350,000 Expected annual net cash inflows 500,000 Expected useful life 4 years Required rate of return 15%
Information for two alternative projects involving machinery investments follows: Project 1 Initial investment Salvage value Annual income $ (128,000) Ө Project 2 $ (98,000) 18,000 14,080 11,600 a. Compute accounting rate of return for each project. b. Based on accounting rate of return, which project is preferred? Complete this question by entering your answers in the tabs below. Required A Required B Compute accounting rate of return for each project. Project 1 Project 2 Numerator: Accounting Rate of Return Denominator: Required A Required B Based on accounting rate of return, which project is preferred? Based on accounting rate of return, is preferred. = Accounting rate of return
Use python to answer the following question: Question 5 A capital investment in an equipment with an upfront cost of $23,540 will provide you with the following annual cash flow stream (paid end of year): 1. $2,000 2. $1,456 3. $3,230 4. $6,850 5. $2,384 6. $1,234 7. $5,987 8. $4,190 The project will incur the following cost for maintenance and repair (paid end of year): Year 3: ($2,984) Year 4: ($1,837) Year 6-8: ($2,000) Calculate the NPV of the investment and comment on whether you should invest in the project. Why or why not? What is the IRR of the investment? The required rate of return is 3.5%.
Information for two alternative projects involving machinery investments follows: Project 2 Project 1 $ (125,000) $ (95,000) 15,000 14,850 Initial investment Salvage value Annual income a. Compute accounting rate of return for each project. b. Based on accounting rate of return, which project is preferred? Complete this question by entering your answers in the tabs below. Required A Required B 0 16,250 Compute accounting rate of return for each project. Project 1 Project 2 Numerator: Accounting Rate of Return 1 7 Denominator: (Required A W Required B > Accounting rate of return
Average rate of return method, net present value method, and analysis for a service company The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Year Robotic AssemblerOperating Income Robotic AssemblerNet Cash Flow WarehouseOperating Income WarehouseNet Cash Flow 1 $47,500 $152,000 $100,000 $243,000 2 47,500 152,000 76,000 205,000 3 47,500 152,000 38,000 144,000 4 47,500 152,000 17,000 99,000 5 47,500 152,000 6,500 69,000 Total $237,500 $760,000 $237,500 $760,000 Each project requires an investment of $500,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747…
You are given the following data for a project that is to be evaluated using the APV method. Year EBIT CAPEX 0 O $201.765 O $193,822 O $185,617 O $222,872 O $213,918 1 $127.000 $60,000 2 Depreciation Increase in NWC Year-end net debt $80,000 Cost of net debt = 8% Unlevered cost of capital = 11.8% Corporate tax rate = 30% Calculate the total value of the project at t = 0. using the APV method. $72,000 $50,000 $100,000 $133,000 $40,000 $80,000 $60,000 $140,000 3 $138.500 $10,000 $84,000 $30,000 $140,000
METHODS THAT CONSIDER TIME VALUE OF MONEY Two investment proposals have been made and the following data thereon are given: Project ALPHA Project BETA Investment P123,417 P155,934 Depreciable assets included in the investment figure 60,000 72,000 Economic life 8 years 12 years Annual sales revenue P65,000 P78,000 Annual out-of-pocket operating cost 36,000 42,500 Income tax rate 35% Cost of capital 10% Determine which proposal is the better one based on: a. Internal rate of return b. Net present value c. Profitability index d. Discounted payback period
Average rate of return method, net present value method, and analysis for a service company The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Year Robotic AssemblerOperating Income Robotic AssemblerNet Cash Flow WarehouseOperating Income WarehouseNet Cash Flow 1 $34,200 $105,000 $72,000 $168,000 2 34,200 105,000 55,000 142,000 3 34,200 105,000 27,000 100,000 4 34,200 105,000 12,000 68,000 5 34,200 105,000 5,000 47,000 Total $171,000 $525,000 $171,000 $525,000 Each project requires an investment of $360,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621…
Whiplash Airbags has been presented an investment opportunity that is summarized below. Year 0 1 3 5 60 100 Cash Flow S(440) 20 (1000's) Determine the IRR for the proposed investment. 2 40 4 80 6 120 7 140 8 160
Question 1 : Assume you are the finance manager of Almanor Company , and the company is considering investing in one of the three projects . The life for both the Projects X , M and Project Y is 5 years . Project X costs OMR . 20500 , Project M costs OMR . 20500 and Project Y costs OMR.20500 . The discount rate / cost of capital is 4.15 % . Required : Use the following techniques to help company to decide which Machine is better and justify why ? A) Payback period B) Discount payback period C) Net Present Value D) Present value index -Profitability index. Year Project X Project M Project Y 1 7865 3748 8752 2 4567 7609 8393 3 9676 4628 4508 4 7292 8905 7836 5 9900 9904 8287
ital investment committee of Iguana Inc. is considering two capital investments. The estimated ig income and net cash flows from each investment are as follows: Year Robotic Assembler ng Income Robotic Assembler Net Cash Flow Warehouse Operating Income Warehouse Net Cash 35,000 $65,000 $21,000 $ 25,000 55,000 21,000 51,000 3 20,000 50,000 21,000 51,000 4 15,000 45,000 21,000 51,000 5 10,000 40,000 21,000 51,000 05,000 $255,000 $105,000 $255,000 Each project requires an investment of $150,000. Straight-line ation will be used, and no residual value is expected. The committee has selected a rate of 12% for s of the net present value analysis. Present Value of $1 at Compound Interest Year 12% 15% 20% 10.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.68: d: 1a. Compute the average rate of return for each investment. If required, round your answer to one place. Investment Committee Average Rate of Return Robotic Assembler % Warehouse %…

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