Net present value of project, Corporate Finance

Assignment Help:

Net present value of this project:

  1. The following I/S is based on the information associated with a new project. Answer the questions.

Projected Income Statements

 

 

Year

 

 

 

1

2

3

4

Sales

Variable Cost

Fixed Cost

Depreciation

EBIT

Taxes (40%)

Net income

9,000,000

5,000,000

2,500,000

500,000

1,000,000

400,000

600,000

9,000,000

5,000,000

2,500,000

500,000

     1,000,000

400,000

600,000

9,000,000

5,000,000

2,500,000

500,000

 1,000,000

400,000

600,000

9,000,000

5,000,000

2,500,000

500,000

    1,000,000

400,000

600,000

 

 

 

 

 

 

1) We plan to invest $2,000,000 to get started. In four years, the new equipment will be sold for $100,000. However, its book value will be $0. The tax rate is 50%. Moreover, we can save NWC by $100,000 at the beginning of the life of this project. Fill the blanks in the following projected cash flow table.(60points)

Projected Cash Flows

 

 

 

Year

 

 

 

0

1

2

3

4

OCF

 

Changes in NWC

 

Capital spending

 

 

(      )           

 

-2,000,000                   

(          ) 

 

 

(          ) 

 

 

(          ) 

 

 

1,100,000           

 

(     )

 

(     )             

Total Cash Flow

 (      )               

(           )

(           )

(           )

(     )               

 

2) Figure out the net present value of this project if the required return is 25%. Based on the NPV, do you accept or reject this project? Based on the NPV, is the internal rate of return (IRR) for this project greater or less than the required return of 25%? (You don't have to figure out the IRR. Please think about the relationship between NPV and IRR)


Related Discussions:- Net present value of project

Priori forecasting, Chang and Fyffe (1971) assume that a ?rm has a ''long-r...

Chang and Fyffe (1971) assume that a ?rm has a ''long-run sales history of individual seasonal-style-goods SKUs or groups of such SKUs''. They propose to estimate demand by using r

Dividends , I need help in Logit using Stata I am very new in that and my s...

I need help in Logit using Stata I am very new in that and my supervisor wants me to use panel data ... which model is best for me and why? no idea could you help me...

Illustrate the essential requisites of a promissory note, A promissory note...

A promissory note is an instrument in writing (not being a blank or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money onl

IRR & WACC, I have been given 3 different types of projects. They state th...

I have been given 3 different types of projects. They state the IRR and how much the project will add. The question goes on to give a WACC with break points. The question wants

Wacc, The cost of capital for a firm can differ from the cost of capital fo...

The cost of capital for a firm can differ from the cost of capital for each of its businesses. When a firm has multiple businesses, it is important to use the cost of capital appro

Calculate the pv and npv, Suppose you take out a loan of $10,000, repayable...

Suppose you take out a loan of $10,000, repayable by five equal annual instalments. The interest rate is 10% per year. (a) How much do you need to repay per year to the nearest ce

Equity financing with debt financing, Seattle Health Plans currently uses z...

Seattle Health Plans currently uses zero debt financing.  Its operating income (EBIT) $1 million, and it pays taxes at a 40 percent rate.  It has $5 million in assests and because

Interest Rates and Bond Valuation, Bond J is a 4 percent coupon bond. Bond ...

Bond J is a 4 percent coupon bond. Bond K is a 12 percent coupon bond. Both bonds have 8 years to maturity, make semiannual payments and have a YTM of 7 percent....what are the mon

Bond valuation, An investor buys a French government, 10-year bond, paying ...

An investor buys a French government, 10-year bond, paying annual coupon of 4.5%. Face value = 1000. The investor is unsure of his investment horizon and considers 5 horizons: 5, 6

Write Your Message!

Captcha
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