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Submitted by sna200 on Thu, 2012-05-24 16:35
due on Mon, 2012-05-28 16:31
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Finance Class - 419


Note: To receive credit, show work on all problems (It can be shown as Excel or financial calculator inputs as well) on either this sheet or in Excel. For instance, if solving for the FV of $ 100 at 6% over 5 years, one could demonstrate by listing the following: PV = -100, N=5, I=6 and FV =133.82 (which would be the answer).

1)Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,000,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,500,000 per year for each of the next eight years. In year eight the firm will also get back a cash flow equal to the salvage value of the equipment which is valued at $1 million. Thus, in year eight the investment cash inflow totals $3,500,000. Calculate the project’s NPV using each of the following discount rates:

a. 9%

b. 11%

c. 13%

d. 15%

2)Big Steve’s, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $100,000 and will generate net cash inflows of $18,000 per year for 10 years.

a. What is the project’s NPV using a discount rate of 10%? Should

the project be accepted? Why or why not?

b. What is the project’s NPV using a discount rate of 15%? Should the project be accepted? Why or why not?

c. What is this project’s internal rate of return? Should the project be accepted? Why or why not?

3) Jella Cosmetics is considering a project that costs $800,000 and is expected to last for 10 years and produce future cash flows of $175,000 per year. What is the project’s IRR?

4)Microwave Oven Programming, Inc. is considering the construction of a new plant. The plant will have an initial cash outlay of $7 million (CF0 = –$7 million), and will produce cash flows of $3 million at the end of year 1, $4 million at the end of year 2, and $2 million at the end of years 3 through 5. What is the internal rate of return on this new plant?

5)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 $1,950,000, and the project would generate cash flows of $450,000 per year for six years. The appropriate discount rate is 9 percent.

a.Calculate the net present value.

b.Calculate the profitability index.

c.Calculate the internal rate of return.

d. Should this project be accepted? Why or why not?

6)The Callaway Cattle Company is considering the construction of a new feed handling system for its feed lot in Abilene, Kansas. The new system will provide annual labor savings and reduced waste totaling $200,000 while the initial investment is only $500,000. Callaway’s management has used a simple payback method for evaluating new investments in the past but plans to calculate the discounted payback to analyze the investment. Where the appropriate discount rate for this type of project is 10 percent, what is the project’s discounted payback period?

7) The Bar-None Manufacturing Co. manufactures fence panels used in cattle feed lots throughout the Midwest. Bar-None’s management is considering three investment projects for next year but doesn’t want to make any investment that requires more than three years to recover the firm’s initial investment. The cash flows for the three projects (Project A, Project B, and Project C) are found below: (SHOW WORK/CALCULATIONS TO DEMONSTRATE ANSWER RATIONALE)

Year Project A Project B Project C

0 $(1,000) $(10,000) $(5,000)

1 600 5,000 1,000

2 300 3,000 1,000

3 200 3,000 2,000

4 100 3,000 2,000

5 500 3,000 2,000

a.Given Bar-None’s three-year payback period, which of the projects qualify for acceptance?

b.Rank the three projects using their payback period. Which project looks the best using this criterion?

c.If Bar-None uses a 10% discount rate to analyze projects, what is the discounted payback period for each of the three projects? If the firm still maintains its three-year payback policy for the discounted payback, which projects should the firm undertaken?

8)You are considering a project with an initial cash outlay of $80,000 and expected cash flows of $20,000 at the end of each year for six years. The discount rate for this project is 10%.

a.What are the project’s payback and discounted payback periods?

b.What is the project’s NPV?

c.What is the project’s PI?

d.What is the project’s IRR?

Submitted by neel on Fri, 2012-05-25 15:06
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Answer-100% correct solution from a CPA and CFA

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here u go..,,

file1.xlsx preview (340 words)


xxxxxxx 1
xxxxxxx Cash xxxxxxxxxxxxxxx
xxxx xxxxxx Discounting xxxxx
0 -10000000x-10000000
125000000.9174 xxxxxxx
x xxxxxxx xxxxxx xxxxxxx
4 xxxxxxx 0.7084 1771000
xxxxxxxx xxxxxx xxxxxxx
6xxxxxxx xxxxxx 1490499.9999999998
7xxxxxxx xxxxx1367500
8xxxxxxx 0.5018 1756300
YearAmountxxxxxxxxxxx xxxxPV
xxxxxxxxxx xxxxxxxxxx
x 25000000.81162029000
x2500000 0.73121828000
x2500000 xxxxxx 1646749.9999999998
x2500000 xxxxxxxxxxxxx
62500000xxxxxx 1336500
xxxxxxxx xxxxxx1518650
xxx xxxxxxx
YearxxxxxxDiscountin @13% xx
x xxxxxxxxxx -10000000
2 25000000.78311957750
3xxxxxxx xxxxx1732499.9999999998
x xxxxxxxxxxxxx1200750
x xxxxxxx0.4251062500
8 xxxxxxxxxxxxxxxxxxxx
NPV 2372100
xxxx Amountxxxxxxxxxx @15%PV
x xxxxxxxxx 1 -10000000
2 xxxxxxx0.7561xxxxxxx
3 2500000 xxxxxx 1643750
x xxxxxxx0.5717 1429250
x xxxxxxx xxxxxx xxxxxxx
x xxxxxxx0.4323 xxxxxxx
xxxxxxxx 0.3759xxxxxx
8xxxxxxx xxxxxx 1144150
Problem 2
xxxxAmountxxxxxxxxxx @15% PV
0-100000 x xxxxxxx
x18000 xxxxxxxxxxx
xxxxxx 0.657511835
x18000 xxxxxx 10290.6
x 18000xxxxxx8947.8
6 18000 xxxxxx7781.4
x 180000.3759 6766.2
8 18000xxxxxx xxxxxx
918000 0.28425115.6
10 xxxxx 0.2471 xxxxxx
NPVxxxxxxxNo this project xxx not be accepted because xx negative xxx xx xxx project.
YearAmountxxxxxxxx xxxxxxxxxx
x xxxxx xxxxx 16362
2 180000.8264 xxxxxxx
x18000 0.683 xxxxx
x 180000.620911176.2
x18000xxxxxx xxxxxxx
8xxxxx0.4665 xxxx
x18000 xxxxx xxxx
10 18000xxxxxx 6939
NPV xxxxxxx Yes this xxxxxxx xxx be accepted xxxxxxx xx xxxxxxxx NPV xx xxx project.

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Submitted by shahimermaid on Thu, 2012-05-24 21:24
teacher rated 387 times
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the answer is explained in the simplest way and is attached

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xxxx Four xxxxxxxxxx Problems xxxxx

xxxxx xx xxxxxxx credit, show work on xxx xxxxxxxx xxx can xx shown xx Excel or financial calculator xxxxxx as well) xx either xxxx sheet xx in xxxxxx For xxxxxxxxx if solving for the FV of $ xxx xx 6% over 5 xxxxxx xxx could demonstrate xx xxxxxxx the xxxxxxxxxx PV = xxxxx N=5, I=6 and FV =133.82 xxxxxx would xx xxx answer).

xxxxxxxx Trucking is considering whether to expand xxx regional service center in Mohab, xxx xxx expansion xxxxxxxx xxx xxxxxxxxxxx of xxxxxxxxxxx xx new service equipment and xxxxx generate xxxxxx xxx cash inflows from reduced costs xx xxxxxxxxxx xxxxx to $2,500,000 xxx year for each xx xxx next xxxxx xxxxxx xx xxxx xxxxx the firm xxxx also xxx xxxx x cash flow xxxxx xx xxx salvage xxxxx of the xxxxxxxxx xxxxx is valued at $1 xxxxxxxx Thus, in xxxx xxxxx xxx investment xxxx inflow totals xxxxxxxxxxx Calculate xxx project’x xxx xxxxx each of the following xxxxxxxx xxxxxx





xxxxx Steve’s, xxxxxx xx swizzle

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