User Account

All Pages

Conduct a scenario and sensitivity analysis of the project

Assignment Help Corporate Finance
Reference no: EM13204094

Capital Budgeting for a New Machine

A few months have now passed and AirJet Best Parts, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The anticipated cash flows for the project are as follows:

Year 1             $1,100,000

Year 2             $1,450,000

Year 3             $1,300,000

Year 4             $950,000

You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,000,000.

1. What is the project's IRR?

2. What is the project's NPV?

3. Should the company accept this project and why (or why not)?

4. Explain how depreciation will affect the present value of the project.

5. Provide examples of at least one of the following as it relates to the project:

a. Sunk Cost

b. Opportunity cost

c. Erosion

6. Explain how you would conduct a scenario and sensitivity analysis of the project. What would be some project-specific risks and market risks related to this project?

Reference no: EM13204094

Questions Cloud

Which might produce a new equilibrium interest rate : The accompanying graph shows the market for loanable funds in equilibrium. Which might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150. what will shift the equilibrium right from $100 to $150 ..
Compute cost of common equity using the capm model : What is the after-tax cost of debt if the tax rate is 34% and explain what other methods you could have used to find the cost of debt for AirJet Best Parts Inc.
Which firm operates is perfectly competitive in industry : A firm that produces houses has a total costs function given by the following: TC = 144 + 4Q2. If the industry in which this firm operates is perfectly competitive, in the long run competitive equilibrium the number of houses the firm will produce..
What is the probability that the selected student is female : what is the probability that the student selected will be female or a mathematics major or both?
Conduct a scenario and sensitivity analysis of the project : Explain how you would conduct a scenario and sensitivity analysis of the project. What would be some project-specific risks and market risks related to this project?
Determine the estelles and market demand for chicken are : Adam, Joe and Estelle constitute the entire market for chicken. Adam's demand curve is given by QA = 100 - 2P Joe's demand curve is given by QJ = 160 - 4P Estelle's demand curve is given by QE = 150 - 5P Using this information, when P = 35 Adam's, Jo..
Depict the inequality used to solve the problem : Sarah bowled 136 and 189 in her first two games. What must she bowl in her third game to have an average of at least 170? a) Write the inequality used to solve this problem.
Who wish to purchase season tickets for football and cricket : Consider the following information about Adam and Betty who wish to purchase season tickets for football and cricket at the Sydney Cricket Ground: Season ticket for cricket Adam's willingness to pay $100 Betty's willingness to pay $600
Explain and find the ratio of the amount of juice : The second can has twice the diameter of the first and is half as tall. Find the ratio of the amount of juice in the second can to the amount of juice in the first can.

Reviews

Write a Review

Corporate Finance Questions & Answers

  Compute current and quick ratios for companies

Compute the items for Lone Pine Company for 20X2, rounding all calculations to two decimal places when necessary- Quick ratio

  Standard deviation for each security

What is a real option and how does it relate to capital budgeting and the objective of the firm and find the expected return and standard deviation for each security.

  Identify the number of emergency appointments

Identify the number of emergency appointments, patient load and administrative costs for each month within the relevant range and construct an excel spreadsheet and create a regression analysis to estimate

  Determine the prices of municipal bonds

Determine the prices of municipal bonds by discounting their expected payoffs using the discount rate for risk-free municipal bonds, determine the promised yield to maturity for Rio Linda's outstanding issue of 4.5 percent coupon bonds.

  Compute current stock price

Star Wars Group just paid a dividend of $1.50 per share on its stock. The dividends are expected to grow at a constant rate of 10 percent per year, indefinitely.

  How do the exchange rates vary the results

Explain why the results vary so much and how do the exchange rates vary the results more than expected here

  Define what is meant by interest rate risk

Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

  Compute the amount suffolk should report as a deferred tax

At December 31, 2012, Suffolk Corporation had an estimated warranty liability of $105,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 40%. Compute the amount Suffol..

  Shows the relationship of the bond''s price

Prepare a chart that shows the relationship of the bond's price to your required return and use a range of 0% to 15% with 0.5% increments in calculating the prices.

  Determine the return on equity

Determine the return on equity do investors expect for a company with a 17$ stock value, a dividend in one year of 2$, a beta of 1.6, & a constant growth rate is 2 percent?

  Estimate debt for companies

How is the cost of debt determined? Does the cost of debt differ if the company is privately traded as opposed to publicly traded?

  Discuss and explain structure and staffing

Discuss and explain the following terms related to structure & staffing: restructuring, realignment & lateral shift. Select any term that you believe to the most.

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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