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Pierre Bouvier is evaluating four projects. The cash flows for the four projects are given here.
TIME 0 1 2 3 4PROJECT K -100 40 40 40 40PROJECT L -100 40 80 0 40PROJECT M -90 40 80 0 30PROJECT N -90 40 80 0 40
a. Pierre thinks you can rank these projects from best to worst by simply inspecting the cash flows (and not calculating anything). Try to do so.
b. Pierre next found the NPV of each project, discounting future cash flows at 10%. What is the NPV for each project?
c. Do your rankings in parts a and b agree?
A project will produce an operating cash flow of $14,600 a year for 8 years. The initial fixed asset investment in the project will be $48,900.
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The Scampini Supplies Corporation recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to create net after-tax operating cash flows, including depreciation, of $6,250 each year.
Consider the following financial statement information for the Schwertzec Corporation:
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Sales for the year just ended were $400, and fixed assets were used at 80 percent of capacity, but its current assets were at optimal levels.
Project Y has an expected life of 4 years with after-tax cash inflows of $4,000 at the end of each of the next 4 years. The firm's WACC is 8%. Use the replacement chain to determine the NPV of the most profitable project.
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