Expected net cash flows

Assignment Help Accounting Basics
Reference no: EM13674063

Use the following information for Questions 1 through 5: Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows:

EXPECTED NET CASH FLOWS:
Year Project A Project B
0 -$400 -$650
1 -528 210
2 -219 210
3 -150 210
4 1,100 210
5 820 210
6 990 210
7 -325 210
1. Construct NPV profiles for Projects A and B.
2. What is each project's IRR?
3. If each project's cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?
4. What is each project's MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B's life.)
5. What is the crossover rate, and what is its significance?
Use the following information for Questions 6 through 8: The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter's cost of capital for an average-risk project is 10%.
Net After-Tax Cash Flows
Year P = 0.2 P = 0.6 P = 0.2
0 -$100,000 -$100,000 -$100,000
1 20,000 30,000 40,000
2 20,000 30,000 40,000
3 20,000 30,000 40,000
4 20,000 30,000 40,000
5 20,000 30,000 40,000
5* 0 20,000 30,000
6. Assume that the project has average risk. Find the project's expected NPV. (Hint: Use expected values for the net cash flow in each year.)
7. Find the best-case and worst-case NPVs. What is the probability of occurrence of the worst case if the cash flows are perfectly dependent (perfectly positively correlated) over time?
8. Assume that all the cash flows are perfectly positively correlated. That is, assume there are only three possible cash flow streams over time-the worst case, the most likely (or base) case, and the best case-with respective probabilities of 0.2, 0.6, and 0.2. These cases are represented by each of the columns in the table. Find the expected NPV, its standard deviation, and its coefficient of variation for each probability.
Use the following information for Question 9: At year-end 2013, Wallace Landscaping's total assets were $2.17 million and its accounts payable were $560,000. Sales, which in 2013 were $3.5 million, are expected to increase by 35% in 2014. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $625,000 in 2013, and retained earnings were $395,000. Wallace has arranged to sell $195,000 of new common stock in 2014 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2014. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 45% of earnings will be paid out as dividends.
9. What were Wallace's total long-term debt and total liabilities in 2013?

 

Reference no: EM13674063

Questions Cloud

Accounting records of blocker transport reveal : Accounting records of Blocker Transport reveal these transactions and events.
Cost allocation problem : Cost Allocation Problem
What liability due to risk of loss from lack of insurance : Ignoring the November 24, 2014, accident, what liability due to the risk of loss from lack of insurance
What is international convergence : What is International Convergence
Expected net cash flows : EXPECTED NET CASH FLOWS
Annual salary from moveable feast : Annual salary from Moveable Feast
Limitations to consolidated financial statements : Limitations to consolidated financial statements
Prepare a schedule of safe payments : Prepare a Schedule of Safe Payments
Tfc decision to expand to the west coast market : From the scenario, cite your forecasting conclusions that support TFC's decision to expand to the West Coast market. Speculate as to whether or not the agency conflict discussed in the scenario could become a roadblock to your conclusions. Prov..

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  On july 31 2003 dome co issued 1000000 of 10 15-year bonds

on july 31 2003 dome co. issued 1000000 of 10 15-year bonds at par and used a portion of the proceeds to call its 600

  Brielle corporation is projecting a cash balance of 31785

brielle corporation is projecting a cash balance of 31785 in its december 31 2013 balance sheet. brielles schedule of

  Sun inc factors 2000000 of its accounts receivables with

sun inc. factors 2000000 of its accounts receivables with recourse for a finance charge of 3. the finance company

  Evaluate the factors driving demand for audit and assurance

evaluate the factors driving demand for audit and assurance services and determine which one you believe is the most

  Wesser inc has written off a 2000 account as noncollectable

wesser inc. has written off a 2000 account as noncollectable. the balance in accounts receivable was 271000 and the

  Create investigative and reporting tools based on the fraud

For this assignment, you will create investigative and reporting tools based on the fraud case you selected during Module 4. Please include the following.

  Lonely guy repair service recently performed repair

lonely guy repair service recently performed repair services for a customer that totaled 400. somehow the bill was lost

  Variable cost per visit 10 annual direct fixed costs50000

super clinics offers one service that has the following annual cost and volume estimates variable cost per visit 10

  Randon house current eps is 650 it was 442 five years ago

randon house current eps is 6.50. it was 4.42 five years ago. the company pays out 40 of its earnings as dividends and

  A company desires to replace its current plant equipment

a company desires to replace its current plant equipment with new equipment that costs 10000000. one possibility would

  Land was sold at its original cost 4 dividends of 96600

selected financial statement information and additional data for precious co. is presented below. prepare a statement

  Amount of income report from lease transaction

The first payment was made on December 31, 2001. The normal sales price of the equipment is $220,000, and cost is $176,000. For the year ended December 31, 2002, what amount of income should Slice report from the lease transaction?

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