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3 years ago

Your division is considering two projects with the following cash flows (in millions):

Business

2 answers:

eimsori [14]3 years ago

8 0

Answer:

Explanation:

1.If WACC = 5%

Project A

Year Cash Flow PV factor @5% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.952 $14.28

2 $13 0.907 $11.791

3 $3 0.864 $2.592

__________

NPV = - $ 0.337 millions

Project B

Year Cash Flow PV factor @5% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.952 $7.616

2 $3 0.907 $2.721

3 $6 0.864 $5.184

__________

NPV = - $ 0.479 millions

2. If WACC = 10 %

Project A

Year Cash Flow PV factor @10% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.909 $13.635

2 $13 0.826 $10.738

3 $3 0.751 $2.253

__________

NPV = - $ 2.374 millions

Project B

Year Cash Flow PV factor @10% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.909 $7.272

2 $3 0.826 $2.478

3 $6 0.751 $4.506

__________

NPV = - $ 1.744 millions

3. If WACC = 15%

Project A

Year Cash Flow PV factor @ 15% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.870 $13.05

2 $13 0.756 $9.828

3 $3 0.658 $1.974

__________

NPV = -$ 4.148 millions

Project B

Year Cash Flow PV factor @15% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.870 $6.96

2 $3 0.756 $2.268

3 $6 0.658 $3.948

__________

NPV = -$ 2.824 millions

4. If WACC = 5% , IRR = ?

Project A

Year Cash Flow PV factor @5% PV factor @ 4% (a)* (b) (a) *(c)

(b) (c)

0 -$29 1 1 - $29 -$29

1 $15 0.952 0.962 $14.28 $14.43

2 $13 0.907 0.925 $11.791 $12.025

3 $3 0.864 0.889 $2.592 $2.667

__________ ____________

NPV = - $ 0.337 m NPV = -$0.122 m

Since NPV is fairly close to zero at 4% value of r, therefore IRR ≈ 4%

Project B

Year Cash Flow PV factor @5% PV factor @ 3% (a)* (b) (a) * (c)

(b) (c)

0 -$16 1 1 - $16 -$16

1 $8 0.952 0.971 $7.616 $7.768

2 $3 0.907 0.943 $2.721 $2.829

3 $6 0.864 0.915 $5.184 $5.49

__________ ____________

NPV = -$ 0.479 m NPV= - $ .087

Since NPV is fairly close to zero at 3% value of r, therefore IRR ≈ 3%

5. If WACC = 10% , IRR = ?

Project A

Year Cash Flow PV factor @10% PV factor @ 8% (a)* (b) (a) *(c)

(b) (c)

0 -$29 1 1 - $29 -$29

1 $15 0.909 0.926 $13.635 $13.89

2 $13 0.826 0.857 $10.738 $11.141

3 $3 0.751 0.792 $2.253 $2.376

__________ ____________

NPV = - $ 2.374 m NPV = -$1.593 m

Since NPV is fairly close to zero at 8% value of r, therefore IRR ≈ 8%

Project B

Year Cash Flow PV factor @10% PV factor @ 8% (a)* (b) (a) * (c)

(b) (c)

0 -$16 1 1 - $16 -$16

1 $8 0.909 0.926 $ 7.272 $7.408

2 $3 0.826 0.857 $ 2.478 $2.571

3 $6 0.751 0.792 $ 4.506 $4.752

__________ ____________

NPV = - $ 1.744 m NPV= - $1.269

Since NPV is fairly close to zero at 8% value of r, therefore IRR ≈ 8%

6. If WACC = 15% , IRR =?

Project A

Year Cash Flow PV factor @ 15% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.870 $13.05

2 $13 0.756 $9.828

3 $3 0.658 $1.974

__________

NPV = -$ 4.148 millions

NPV @ 8% = -$ 1.593

Since NPV is fairly close to zero at 8% value of r, therefore IRR ≈ 8%

Project B

Year Cash Flow PV factor @15% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.870 $6.96

2 $3 0.756 $2.268

3 $6 0.658 $3.948

__________

NPV = -$ 2.824 millions

NPV @ 8% = -$1.269

Since NPV is fairly close to zero at 8% value of r, therefore IRR ≈ 8%

7.If WACC = 5%

Project A

Year Cash Flow PV factor @5% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.952 $14.28

2 $13 0.907 $11.791

3 $3 0.864 $2.592

__________

NPV = - $ 0.337 millions

Project B

Year Cash Flow PV factor @5% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.952 $7.616

2 $3 0.907 $2.721

3 $6 0.864 $5.184

__________

NPV = - $ 0.479 millions

NPV of project B > project A than choose Project B

2. If WACC = 10 %

Project A

Year Cash Flow PV factor @10% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.909 $13.635

2 $13 0.826 $10.738

3 $3 0.751 $2.253

__________

NPV = - $ 2.374 millions

Project B

Year Cash Flow PV factor @10% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.909 $7.272

2 $3 0.826 $2.478

3 $6 0.751 $4.506

__________

NPV = - $ 1.744 millions

NPV of project A > project B than choose Project A

3. If WACC = 15%

Project A

Year Cash Flow PV factor @ 15% (a)* (b)

(b)

0 -$29 1 - $29

1 $15 0.870 $13.05

2 $13 0.756 $9.828

3 $3 0.658 $1.974

__________

NPV = -$ 4.148 millions

Project BYear Cash Flow PV factor @15% (a)* (b)

(b)

0 -$16 1 - $16

1 $8 0.870 $6.96

2 $3 0.756 $2.268

3 $6 0.658 $3.948

__________

NPV = -$ 2.824 millions

NPV of project A > project B than choose Project A

Law Incorporation [45]3 years ago

4 0

Answer:

Below is attached the file containing answer of the above mention question

Explanation:

Download docx

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Answer:

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3 years ago

Perine, Inc., has balance sheet equity of $5.4 million. At the same time, the income statement shows net income of $783,000. The

S_A_V [24]

Answer:

The target stock price in one year is $149.93

Explanation:

Fly Away, Inc., has

Balance sheet equity of (E) = $ 5,400,000

Also, the income statement shows net income of (NI) = $783,000.

The company paid dividends of (D) = $438,480

Shares of stock outstanding (N) = 100,000

Benchmark PE ratio = 18

Question = what is the target stock price in one year?

We need the expected EPS at the end of next year and not this year.

EPS this year, E₀ = NI / N

= 783,000 / 100,000

= $ 7.83

Retention Ratio, "R" = 1 - Dividend payout ratio = 1 - D/NI

= 1 - 438,480 / 783,000

= 1 - 56.00%

= 44.00%

Return on equity, ROE = NI / E

= 783,000 / 5,400,000

= 14.50%

Growth rate in earnings, g = R x ROE

= 44.00% x 14.50%

= 6.38%

Hence, expected EPS next year, E₁ = E₀ x (1 + g)

= $ 7.83 x (1 + 6.38%)

= $ 8.33

Hence, target price next year, P = Benchmark PE ratio x E₁

= 18 x $8.33

= $149.93

The target stock price in one year = $149.93

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3 years ago

3. Raymond decides to set up a lemonade stand every weekend for the next four weeks to save up for the latest X-Men comic. He ha

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Answer:

It should listen to his mother.

Explanation:

This week cash flow handled the fixed cost of 10 to Raymond's brother.

His father is not considering that so it thinks the business flops.

Now that fixed cost are paid the following weeks his gains will increase entirely based on the sales volume so, it is better to continue the business for the next three weeks.

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3 years ago

Berne, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per

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Answer and Explanation:

As per the data given in the question,

Flexible manufacturing overhead budget

Activity level :

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Variable costs :

Indirect labor $5 $10,000 $15,000 $20,000

Indirect material $2.50 $5,000 $7,500 $10,000

Maintenance $0.80 $1,600 $2,400 $3,200

Utilities $0.30 $600 $900 $1,200

Total variable cost $22,600 $25,800 $34,400

Fixed costs :

Supervision $800 $800 $800

Insurance $200 $200 $200

Property taxes $300 $300 $300

Depreciation $900 $900 $900

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Total Cost $24,800 $28,000 $36,600

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2 years ago

It has been said that incentive plans work only for a relatively short time. Do you agree or disagree with this statement? Why o

VashaNatasha [74]

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3 years ago