Question Details

FIN 571 Week 5 Connect Problems

Complete the Week 5 Connect problems.
 1.
The difference between the present value of an investment- future cash flows and its initial cost is the:



2.
Which statement concerning the net present value (NPV) of an investment or a financing project is correct?


 3.
The primary reason that company projects with positive net present values are considered acceptable is that:



4.
Accepting a positive net present value (NPV) project:


 5.
The net present value method of capital budgeting analysis does all of the following except:


 6.
 
What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent.




 7.
 
Maxwell Software, Inc., has the following mutually exclusive projects.
  
Year	 	Project A	 	Project B
  0	 	 -$23,000   	 	 -$26,000   
  1	 	13,500   	 	14,500   
  2	 	10,000   	 	11,000   
  3	 	3,200   	 	10,000   
________________________________________
  
a-1.	Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)
  
 	Payback period
  Project A	  years  

  Project B	  years  

________________________________________
  
a-2.	Which, if either, of these projects should be chosen?
 	 
 	Project A
  
b-1.	What is the NPV for each project if the appropriate discount rate is 17 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
  
 	NPV
  Project A	$   

  Project B	$    

________________________________________
  
b-2.	Which, if either, of these projects should be chosen if the appropriate discount rate is 17 percent?
 	 
 	Project B

 

 8.
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.82 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $2,120,000 in annual sales, with costs of $815,000. The tax rate is 30 percent and the required return is 12 percent.
   
What is the project- NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
  NPV	$    


 

 9.
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project.
 
 	 Year 0	Year 1  	Year 2  	Year 3  	Year 4  
  Investment	$	41,000  	 	 	 	 	 	 	 	 
  Sales revenue	 	 	$	21,000  	$ 	21,500  	$	22,000  	$	19,000  
  Operating costs	 	 	 	4,400  	 	4,500  	 	4,600  	 	3,800  
  Depreciation	 	 	 	10,250  	 	10,250  	 	10,250  	 	10,250  
  Net working capital spending	 	470  	 	520  	 	570  	 	470  	 	?
________________________________________
 
a.	Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.)
 
 	Year 1  	Year 2  	Year 3  	Year 4  
  Net income	 $  
$  
$  
$  

________________________________________
 
b.	Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.)
 
 	Year 0  	Year 1  	Year 2  	Year 3  	Year 4  
  Cash flow	$    
$    
$    
$    
$    

________________________________________
 
c.	Suppose the appropriate discount rate is 13 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
 
  NPV	$