Can you explain the CF analysis set up demonstrated in these problems?, business and finance homework help

User Generated

rfgure63

Business Finance

Description

I am confused on how to set up this problems. Can you provide me with some details in you reply?

Unformatted Attachment Preview

Present Value of Annity PV FV Rate Period Payment Annuities have NO FV $48.271,94 0 0,07 15 5300 Problem 4-13 Calculating Annuity Present Value An investment offers $6,700 per year for 15 years, with the first payment occurring one year from now. If the required return is 6 percent, what is the value of the investment? (Do not round intermediate calculations a Week 2 Q6 FV Period Payment Rate Stock $83.110,13 FV 25 -820 0,102 Bond $23.702,69 25 -420 0,062 nt occurring one year from now. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Savings TOTAL Payment per month $106.812,81 240 ($840,98995) 0,006 $445,05340 Tristan Principal Rate Period Tristan Jose 3500 0,07 Principal Rate Period 8 years 1 3.745,00000000 2 4.007,15000000 3 4.287,65050000 4 4.587,78603500 Calculating Annuity payments FV PV Payment Rate Period Acct 1-Stock $83.110,13 FV PV -820 Payment 0,102 Rate 25 Period Acct 2-Bond $23.702,69 FV PV -420 Payment 0,062 Rate 25 Period Week2 Q.11 Year AZM Mini-SUV 0 1 2 3 Rate Payback Period for each cash flow NPV for each cash flow IRR for each cash flow NPV IRR (500.000,00000) 330.000,00000 200.000,00000 160.000,00000 0,12000 $67.966,47 20,94757% Week 2 Q.12 Year Proj. A Proj. B 0 (210.000,0000000) (375.000,0000000) 1 135.000,0000000 230.000,0000000 2 135.000,0000000 230.000,0000000 Rate 0,0600000 0,0600000 NPV 37.508,00997 46.680,31328 Calulate Profitibility Index=PV/initial investment. If the profitability index is greater than 1, th PI $1,18 1,12 Jose 3500 8 5 4.908,93105745 6 5.252,55623147 7 5.620,23516767 8 6.013,65162941 6031,65 316,4563 9,041607 For #6 (4-23), Payment $106.812,81 First figure out the retirement account values to sum. For Future Values formulas in Excel, use something like =FV((interest/ann ual periods),total investment periods,outflow payment, 0 present value, 0) ($10.239,63341) 0,072 20 Do that for each account and add the total Future Values. Then consider that you need to find out the monthly payout (over 30 years), and the start of that payout entails the sum from step #3 is now a present value. You would use a formula like, =PMT((interest/annual periods The returned figure may be negative because it's a payout. AZF Full-SUV –$ (850.000,0000000) 360.000,0000000 440.000,0000000 300.000,0000000 35.727,95 14,49105% Proj. C (210.000,0000000) (585.000,0000000) 145.000,0000000 115.000,0000000 0,0600000 29.142,04343 the profitability index is greater than 1, the project is accepted, and if it is less than 1, the project is rejected. 1,14 =PMT((interest/annual periods),total investment periods, Summed Present Value, 0 future value, 0). When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then u Payback B Period = A C Pay back period =A+(b/C) + In the above formula, A is the last period with a negative cumulative cash flow; B is the absolute value of cumulative cash flow at the end of the period A; C is the total cash flow during the period after A Week 2 Q. 11 Year 0 1 2 3 AZM Mini SUV Cum. Cas Flows (500.000,0000000) (500.000,00000) 330.000,0000000 (170.000,0000000) 200.000,0000000 30.000,0000000 160.000,0000000 190.000,0000000 Payback period Week 2 Q 7. Proj A 0 1 2 3 Rate NPV -19000 11500 8000 2800 0,15 ($1.109,80521) Proj B -22000 12500 9000 8000 0,15 $934,98808 flow for each period and then use the following formula for payback period: AZF Full SUV (850.000,0000000) 360.000,0000000 440.000,0000000 300.000,0000000 Week 3 Problems Problem 6-2 Calculating Project NPV The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 40 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 $ 13,500 $ 14,000 $ 14,500 $ 11,500 Operating costs 2,900 3,000 3,100 2,300 Depreciation 6,500 6,500 6,500 6,500 370 420 320 ? Investment $ 26,000 Sales revenue Net working capital spending 320 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Net income Year 1 Year 2 Year 3 Year 4 $ $ $ $ b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) Cash flow Year 0 Year 1 Year 2 Year 3 $ $ $ $ c. Suppose the appropriate discount rate is 11 percent. What is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) NPV Problem 6-7 Project Evaluation Dog Up! Franks is looking at a new sausage system with an installed cost of $495,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $73,000. The sausage system will save the firm $175,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $32,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) NPV $ Problem 6-8 Calculating Salvage Value An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,190,000 and will be sold for $1,390,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax salvage value of the asset? Refer to MACRS schedule (Do not round intermediate calculations and round your answer to 2 decimal places. Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Aftertax salvage value $ Problem 6-9 Calculating NPV Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.88 million. The marketing department predicts that sales related to the project will be $2.58 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight- line method. Cost of goods sold and operating expenses related to the project are predicted to be 20 percent of sales. Howell also needs to add net working capital of $230,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 34 percent. The required rate of return for Howell is 15 percent. What is the value of the NPV for this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Problem 6-11 Cost-Cutting Proposals Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $540,000 is estimated to result in $225,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $91,000. The press also requires an initial investment in spare parts inventory of $27,000, along with an additional $3,200 in inventory for each succeeding year of the project. The shop’s tax rate is 30 percent and its discount rate is 8 percent. Refer to MACRS schedule. Calculate the NPV of this project. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) NPV $
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Here is the answer. Thanks

(a)
Particulars
Revenue
(-) Operating Cost
(-) Depreciation
Income Before Tax
(-) Tax Expense (40%)
Net Income
(b)
Particulars
Net Income
(+) Depreciation
(-) Net Working Capital
(+) Recovery of Working Capital
Initial Investment
Cash Flow

Net Income Calculation
Year 1
Year 2
13500,00
14000,00
(2900,00)
(3000,00)
(6500,00)
(6500,00)
4100,00
4500,00
(1640,00)
(1800,00)
2460,00
2700,00

Year 3
14500,00
(3100,00)
(6500,00)
4900,00
(1960,00)
2940,00

Year 4
11500,00
(2300,00)
(6500,00)
2700,00
(1080,00)
1620,00

Incremental Cash Flows Calculation
Year 0
Year 1
Year 2
0,00
2460,00
2700,00
0,00
6500,00
6500,00
0,00
8960,00
9200,00
(320,00)
(370,00)
(420,00)

Year 3
2940,00
6500,00
9440,00
(320,00)

(26000,00)
(26320,00)

8590,00

8780,00

9120,00

Cash Flow

NPV Calculation
Year 0
Year 1
(26320,00)
8590,00

Year 2
8780,00

Year 3
9120,00

Discount Factor (11%)

1,0000000

0,9009009

0,8116224

0,7311914

Discounted Cash Flows

(26320,00)

7738,74

7126,04

6668,47

(c)
Particulars

NPV

1504,13

Year 4
1620,00
6500,00
8120,00
1430,00
9550,00

Year 4
9550,00
0,6587310

6290,88

Machine Acquisiti...


Anonymous
Really helped me to better understand my coursework. Super recommended.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags