Comparing Investment Criteria Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assum
1 answer:
You might be interested in
Answer:
net present value NPV = $79800
so correct option is D) $79,800
Explanation:
solution
we knw that Net Present value = PV of cash inflow - PV of cash outflow ............1
so here PV of cash outflow = $300000
and Net sales = $200000
expenses = $80000
Depreciation =
Depreciation = $50000
so Net income before taxes = Net sales - Depreciation - expenses
Net income before taxes = $200000 - $80000 - $50000
Net income before taxes = $70000
and Tax expenses @ 40% = $28000
so
Net income = Net income before taxes - Tax expenses
Net income = $70000 - $28000
Net income = $42000
and
Depreciation = $50000
Net cash inflow = Net income + Depreciation
Net cash inflow = $42000 + $50000
Net cash inflow = $92000
and
PVIFA @ 10% 5 years = $3.7908
so
PV of cash inflow = $348755
PV of salvage value = $50000 ×0.6209
PV of salvage value = $31045
and
so here Total PV of total cash inflow = $379800
and
net present value NPV = Total PV of total cash inflow - PV of cash outflow
net present value NPV = $379800 - $300000
net present value NPV = $79800
so correct option is D) $79,800
Answer:
A. Cost of funds has changed
B. Firm's risk has changed
Explanation:
The required rate of return on bonds refers to an investor's expected rate of return which is based upon rate of return other investors earn in the market on similarly priced bonds. This is also referred to as yield to maturity i.e YTM.
Coupon rate of payment of bond is the interest payment on such bonds which is usually fixed at the time of issue of such bonds.
Required rate of return may differ on account of change in cost of funds to the issuer which is cost of debt denoted as . Cost of debt is determined by tax rate and net proceeds from the issue of such bonds.
Required rate of return may also change on account of change in the firm's risk. If the firm assumes more risk, such risk would deter investors from investing in such bonds and in such scenario, the firm has to offer higher coupon rate than the rate prevailing in the market to attract the investors.