Reference no: EM132288418

Problem 1: Elysian Fields, inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $25,000; project Helium requires an initial outlay of $35,000. Using the expected cash inflows given for each project in the following table, calculate each project's payback period. Which project meets Elysian's standards?

Year	Expected cash inflows
	Hydrogen	Helium
1	$6,000	$7,000
2	6,000	7,000
3	8,000	8,000
4	4,000	5,000
5	3,500	5,000
6	2,000	4,000

Problem 2:  NPV for varying costs of capital Dane Cosmetics is evaluating a new fragrance-mixing machine. The machine requires an initial investment of $24,000 and will generate after-tax cash inflows of $3,000 per year for 8 years. For each of the costs of capital listed, (1) calculate the net present value (NAV), (2) indicate whether to accept or reject the machine, and (3) explain your decision.
a. The cost of capital is 10%.
b. The cost of capital is 12%.
c. The cost of capital is 14%.

Problem 3: Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table. The firm's cost of capital is 15%.

Initial investment (Ch)	Project X	Project Y
	$500,000	$325.000
Year in	Cash inflows (CF,)
1	$100,000	5140,000
2	120,000	120,000
3	150,000	95,000
4	190,000	70,000
5	250,000	50,000

a. Calculate the MR to the nearest whole percent for each of the projects.

b. Assess the acceptability of each project on the basis of the IRRs found in part a.

c. Which project, on this basis, is preferred?

Problem 4: Payback, NPV, and IRR Rieger International is attempting to evaluate the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has esti¬mated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital.

Year (t)	Cash inflows (CF,}
1	520,000
2	25,000
3	30,000
4	35,000
5	40,000

a. Calculate the payback period for the proposed investment.
b. Calculate the net present value (NPV) for the proposed investment.
c. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment.
d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why?

Problem 5: Payback, NPV, and IRR Rieger International is attempting to evaluate the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital.

Year (t)	Cash inflows (CFI)
1	$20,000
2	25,000
3	30,000
4	35,000
5	40,000

a. Calculate the payback period for the proposed investment.
b. Calculate the net present value (NPV) for the proposed investment.
c. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment.
d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why?

Problem 6: Calculating initial investment Vastine Medical, Inc., is considering replacing its ex¬isting computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 4.2, page 120.) A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate.
a. Calculate the book value of the existing computer system.
b. Calculate the after-tax proceeds of its sale for $200,000.
c. Calculate the initial investment associated with the replacement project.

Attachment:- Assignment template.rar