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Question
1: (10 points). (Net present value
calculation) Dowling Sportswear is considering building a new factory to
produce aluminum baseball bats. This project would require an initial cash
outlay of $4,000,000 and would generate annual net cash inflows of $900,000 per
year for 7 years. Calculate the project's NPV using a discount rate of 5
percent. (Round
to the nearest dollar.)
a. If the discount rate is 5
percent, then the project's NPV is:
|
$
|
Question
2: (30 points).(Net present value
calculation) Big Steve's, makers of swizzle sticks, is considering the purchase
of a new plastic stamping machine. This investment requires an initial outlay
of $90,000 and will generate net cash inflows of $19,000 per year for 11 years.
To answer Choose an item questions, click on
the orange text and use the pull down menu to select the best answer.
a. What is the
project's NPV using a discount rate of 7 percent?(Round to the nearest dollar.)
If
the discount rate is 7 percent, then the project's NPV is:
|
$
|
Should
the project be accepted?
The project
b. What is the
project's NPV using a discount rate of 16 percent?
If
the discount rate is 16 percent, then the project's NPV is:
|
$
|
Should the project be
accepted? Why or why not?
c. What is this
project's internal rate of return? (Round to two decimal places.)
This
project's internal rate of return is:
|
%
|
Should the project be
accepted? Why or why not?
If the project's
required discount rate is 7%, then the project
If the project's required
discount rate is 16%, then the project
Question
3: (15 points). (Related to Checkpoint
11.2) (Equivalent annual cost calculation) Barry Boswell is a financial analyst
for Dossman Metal Works, Inc. and he is analyzing two alternative
configurations for the firm's new plasma cutter shop. The two alternatives that
are denoted A and B below perform the same task and although they each cost to
purchase and install they offer very different cash flows. Alternative A has a
useful life of 7 years whereas Alternative B will only last for 3 years. The
after-tax cash flows from the two projects are as follows:
a. Calculate each project's equivalent
annual cost (EAC) given a discount rate of 10 percent. (Round to the nearest cent.)
a. Alternative A's
equivalent annual cost (EAC) at a discount rate of 10% is:
|
$
|
b. Alternative B's
equivalent annual cost (EAC) at a discount rate of 10% is
|
$
|
b. Which of the alternatives do you
think Barry should select? Why? (Select the best choice below.)
a. This cannot be
determined from the information provided.
b. Alternative B should
be selected because its equivalent annual cost is less per year than the annual
equivalent cost for Alternative A.
c. Alternative A should
be selected because its equivalent annual cost is less per year than the annual
equivalent cost for Alternative B.
d. Alternative A should
be selected because it has the highest NPV.
Question
4: (10 points).(IRR calculation) What is
the internal rate of return for the following project: An initial outlay of
$9,000 resulting in a single cash inflow of $15,424 in 7 years. (Round to the
nearest whole percent.)
a. The internal
rate of return for the project is:
|
%
|
Question
5: (10 points).(IRR calculation) Jella
Cosmetics is considering a project that costs $750,000 and is expected to last
for 9 years and produce future cash flows of $180,000 per year. If the
appropriate discount rate for this project is 17 percent, what is the project's
IRR? (Round
to two decimal places.)
a. The project's
IRR is:
|
%
|
Question
6: (10 points) (IRR, payback, and
calculating a missing cash flow) Mode Publishing is considering a new printing
facility that will involve a large initial outlay and then result in a series
of positive cash flows for four years. The estimated cash flows associated with
this project are:
If you know that the project has a
regular payback of 2.9 years, what is the project's internal rate of return?
a. The IRR of the
project is:
|
%
|
Question
7: (15 points)(Mutually exclusive projects
and NPV) You have been assigned the task of evaluating two mutually exclusive
projects with the following projected cash flows:
If the appropriate discount rate on
these projects is 11 percent, which would be chosen and why?(Round to the
nearest cent.)
a. The NPV of
Project A is:
|
$
|
b. The NPV of
Project B is:
|
$
|
Which project would be chosen and why? (Select
the best choice below.)
a.
Cannor
choose without comparing their IRRs.
b.
Choose
A because its NPV is higher.
c.
Choose
both because they both have positive NPVs.
d.
Choose
B because its NPV is higher.
