Calculation of npv for two projects

Assignment Help Finance Basics
Reference no: EM13828304

Problem:

Tri-City Industries is considering two possible capital projects. Project A requires an initial investment of $240,000 and provides cash flows before tax of $120,000 in year one, $140,000 in year two, and $160,000 in year three. If project A is accepted, project B may be undertaken. It provides cash flows before tax of $140,000 for each of three years. However, projects A and B are partial substitutes, and the cash flows of project A will decrease by $40,000 in each of the three years if project B is also undertaken. The company's weighted average cost of capital is 13% and its tax rate is 35%. Ignore the impact of depreciation for this question.

a. What is the NPV of doing only project A?

b. What is the maximum amount that project B can cost so that the combination of taking

both projects provides the same benefit of investing only in project A?

Additional Information:

The question is from Finance and it is about the calculation of NPV for two projects A and B. Detailed calculations and explanation have been given in the solution.

Reference no: EM13828304

Questions Cloud

Calculate the returns from the machine : Kenneth Su Gold Corp (KSGC) is considering the purchase of a new piece of machinery. The new machinery would cost $80,000. You are given the following facts:
Comparison between two pollution devices : You have been asked to choose between two pollution devices. The "Wet Scrub" costs $1,000 to set up and $500 per year to operate. It must be completely replaced every 3 years and it will have a salvage value of $100 when replaced.
Track baseline data of your selected behavior : Track baseline data of your selected behavior that you would like to change over a 3-day period. Use this information in your Self-Management Paper
How to calculate the present value of new equipment : If the company decides to replace their existing modem pool with the new equipment, sales will increase and costs will decline. What is the impact of these changes for the firm's cash flow? In other words, find the present value of the incremental..
Calculation of npv for two projects : Tri-City Industries is considering two possible capital projects. Project A requires an initial investment of $240,000 and provides cash flows before tax of $120,000 in year one, $140,000 in year two, and $160,000 in year three.
What are the three types of management decisions : 1.  What are the three types of management decisions?  2.  Which type of management decision involves the cost volume profit analysis?  3.  What type(s) of cost are included under conversion cost and prime cost?
Evaluate projects with cash flows : Find the payback period, discounted payback period, IRR, and NPV for each of the three projects.
The variable selling and administrative expense : An order has been received from an overseas customer for 2,700 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed ..
Difference between a journal and a ledger : Can anyone think of additional tips you would like to share that might help others in learning these initial steps

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd