Fijisawa, Inc. is Considering a Major Expansion

Fijisawa, Inc. is Considering a Major Expansion for $5 Only (Instant Download)

Fijisawa

(Related to Checkpoint 11.1 and Checkpoint 11.4) (Calculating NPV, PI, and IRR) Fijisawa, Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be $10,800,000, and the project would generate cash flows of $1,250,000 per year for 20 years. The appropriate discount rate is 9.0 percent.
a. Calculate the NPV.
b. Calculate the PI.
c. Calculate the IRR.
d. Should this project be accepted? Why or why not?

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Consultant for Medicals Inc., Manufacturer

Medicals Inc.

Consultant for Medicals Inc., Manufacturer for $14 Only (Instant Download)

CASE 1

You have been hired as a consultant for Medicals Inc., manufacturer of medical devices. The company projects unit sales for a new dental implant as follows:

Year                       Unit Sales

1                             73,000

2                              86,000

3                              97,000

4                              68,000       

  • Production of the implants will require $1,500,000 in net working capital immediately, all of which will be recovered at the end of the project.
  • Total fixed costs are $4,200,000 per year, variable production costs are $255 per unit, and the units are priced at $375 each.
  • The equipment needed to begin production has an installed cost of $8,500,000. This equipment qualifies as three-year MACRS property (depreciation rates are 33.33% for Year 1, 44.45% for Year 2, 14.81% for Year 3, and 7.41% for Year 4).
  • In four years, this equipment can be sold for about 20 percent of its acquisition cost.
  • The tax rate is 21 percent and the required return is 24 percent.
  • The company imposes a payback cutoff of three years for its investment projects.

QUESTIONS:

  1. Complete the pro forma and determine total cash flows for each year of project’s life.

Understanding the case and the process 10 points, finding the right cash flow 10 points (2 per year)

  • Calculate the following investment criteria for the project:

(a) Payback period (5 points) (2.5 for the right formula/approach and 2.5 for the right result)

(b) Profitability Index (PI) (5 points) (2.5 for the right formula/approach and 2.5 for the right result)

(c) Internal rate of return (IRR) (5 points) (2.5 for the right formula/approach and 2.5 for the right result)

(d) Net Present Value (NPV) (5 points) (2.5 for the right formula/approach and 2.5 for the right result)

  • Explain your decision whether you recommend accepting or rejecting the project. (10 points) (3 points for the right answer and 7 points for the explanation)
Year 0 1 2 3 4
Sales revenues          
Variable Costs          
Fixed Costs          
Depreciation          
EBIT          
Taxes          
Net income          
Operating Cash Flow          
Capital spending          
Net Working Capital          
After-tax salvage value          
Total Cash Flow          

Sample Answer:

Unit Sales                73,000                  86,000                 97,000                 68,000
Year01234
Sales revenues (@375 per unit)             (1,500,000)       27,375,000        32,250,000         36,375,000         25,500,000
Variable Costs (@ $255 per unit)                               –         18,615,000        21,930,000         24,735,000         17,340,000
Fixed Costs                               –           4,200,000           4,200,000           4,200,000           4,200,000
Depreciation (from row no. 15)                               –           2,833,050           2,518,959               466,217               198,719
EBIT (1-2-3-4)                               –           1,726,950           3,601,041           6,973,783           3,761,281
Taxes (value of row 5 × 21%)                               –               362,660              756,219           1,464,494               789,869
Net income (5-6)                               –           1,364,291           2,844,822           5,509,288           2,971,412

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Filter Corp. has a Project Available

Answer of Filter Corp. has a Project Available.. for $3 Only

Filter Corp. has a project available with the following cash flows: Year Cash Flow 0 −$16,000 1 5800​ 2 7100​ 3 6100​ 4 4900​What is the project’s IRR? Group of answer choices 18.84% 20.93% 21.98% 19.62% 20.41%

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Internal Rate of Return for a Project

Internal

Internal Rate of Return for a Project for $3 Only

What is the internal rate of return for a project that requires an initial investment of $14,600 and generates a single cash inflow of $25,750 in 5 years?

a. 10 percent b. 12 percent c. 15.3 percent d. 13.1 percent

How to solve this problem using excel and with formula?

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Mini Case Building the Eurotunnel

Mini Case Building the Eurotunnel for $21 Only Buy Now
Free Sample Answer Given Below.
Chapter 11
Calculate NPV and IRR for mini case ‘Building the Eurotunnel’.

Mini Case: The Power to Cool Off in Florida (Indiantown Cogeneration Project)

Tabebuia caraiba. Jensen Beach, Martin County,...

CFM3 Ch 10 Minicase The Power to Cool Off in Florida             in $19 only

Objective:
This case demonstrates the use of NPV, IRR, and financial ratios for evaluating a capital budgeting project.
Case Discussion:
The Indiantown Cogeneration Project involved the construction and operation of a coal-fired plant in Martin County, Florida, that produces electricity and steam. The capital cost (including interest during construction) was approximately $770 million. Since completion, it has an electric generating capacity of 330 megawatts (net) and a steam capacity of 175,000 pounds per hour. The project sells the electric power to Florida Power & Light Company (FPL) under a 30-year contract and the steam to Caulkins Indiantown Citrus Company under a 15-year contract.

FPL’s electricity payments have two parts: one for electric capacity and the other for the electric energy that it receives.

The project’s financing consisted of $630 million of 30-year 9% APR interest rate debt and $140 million of equity. The debt requires equal annual sinking fund payments of $31.5 million beginning in year 11. Depreciation is straight line to zero over 20 years. The tax rate is 40%. Other information about the project includes:

BUSINESS BA327 Mills Mining

BUSINESS BA327 Mills Mining for $3.75 Only (Instant Download)BUSINESS BA327 Mills Mining

Mills Mining is considering an expansion project. To date they have spent $75,000 investigating the viability of the project and have decided to proceed. The proposed project will cost $500,000 in addition to the $75,000 that was spent on the feasibility study. The project will be depreciated over a 3 year MACRS class life.

MACRS

Depreciation

Year Rates

1 0.33

2 0.45

3 0.15

4 0.07

If the project is undertaken the company will need to increase its inventories by $50,000, and its accounts payable will rise by $10,000. The company will realize an additional $600,000 in sales over each of the next three years. The company’s operating costs (not including depreciation) will increase by $400,000 a year. The company’s tax rate is 40%. At t = 3, the project’s economic life is complete, but it will have a salvage value (before-tax) of $50,000 after three years. The project’s WACC is 10%.

a) What is the project’s net present value (NPV)? What is the IRR?

Must show work.

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Objective Types Questions

Objective Types Questions in $7 only

1. Which statement is CORRECT?

a) The IRR method assumes that Cash flows are reinvested at the firm’s WACC

b) The use of Accelerated Depreciation methods (instead of Straight-Line) results in higher operating cash flows in a projects early years.

c) For independent projects with normal cash flows, the NPV, Payback and IRR methods will always lead to the same decision.

d) For normal projects, lower costs of capital lead to lower NPVs.

2. Which of the following is true for normal projects if the cost of capital is positive?

a) If a project’s IRR is positive, then its NPV will always be positive

b) If a project’s NPV is negative, then its Modified IRR will be negative

c) If a project’s NPV is positive, then its Profitability Index will always be positive

d) If a project’s IRR is positive, then its Discounted Payback Period will exist

FIN 534 Quiz 1 (30 questions)

FIN 534 Quiz 1 (30 questions)  in Just $10 (Instant Download)FIN 534 Quiz 1 (30 questions)

FIN 534 Quiz 1 (30 questions)  Got 100% 

Question 1

Which of the following statements is CORRECT?
Answer

One defect of the IRR method is that it does not take account of cash flows over a project’s full life.

One defect of the IRR method is that it does not take account of the time value of money.

One defect of the IRR method is that it does not take account of the cost of capital.

One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until sometime in the future.

One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.
2 points
Question 2

Clark Paints: Calculate Annual cash flows, Payback Period NPV & IRR

Clark Paints: Calculate Annual cash flows, Payback Period NPV & IRR

Clark Paints: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $200,000, with a disposal value of $40,000, and it would be able to produce 5,500,000 cans over the life of the machinery. The production department estimates that approximately 1,100,000 cans would be needed for each of the next five years.

The company would hire three new employees. These three individuals would be full-time employees working 2,000 hours per year and earning $12.00 per hour. They would also receive the same benefits as other production employees, 18% of wages, in addition to $2,500 of health benefits.

It is estimated that the raw materials will cost 25¢ per can and that other variable costs would be 5¢ per can. Since there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.