16. A three-year project requires an initial investment of £100,000 and willproduce positive net operating cash flows of £40,000, £35,000 and£45,000 in years 1, 2 and 3. The investment has no residual value atthe end of the project.The company uses a 10% discount rate and does not currently paytax. The NPV has been calculated as - £4,690 (i.e. negative).What is the sensitivity of the project decision to changes in the cost ofthe investment?(a) 0%(b) 4.7%(c) 21.3%(d) 95.3%

Sensitivity analysis is used to determine the most sensitive element or factor which influences the…

Answered: 16. A three-year project requires an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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An investment has an installed cost of $532,800. The cash flows over the four-year life of the investment are projected to be $216,850, $233,450, $200,110, and $148,820, respectively. a. If the discount rate is zero, what is the NPV? (Do not round intermediate calculations.) b. If the discount rate is infinite, what is the NPV? (A negative answer should be indicated by a minus sign.) c. At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV b. NPV c. IRR Q % l
A project that will provde annual cash flows of $3,050 for nine years costs $10,200 today. a. At a required return of 11 percent, what is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. At a required return of 27 percent, what is the NPV of the project? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. At what discount rate would you be indifferent between accepting the project and rejecting it? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. NPV b. NPV c. Discount rate %
A company is considering investing in a project whose present value without flexibility is 100 million. The project pays no dividends, and the initial investment required is 102 million. The appropriate cost of capital for the project is 20%. The risk-free rate is 5%. Every period the project cash flows either go up by a factor "u", or reduces by a factor "d". Use u = 2.2255 and d% = %3D 0.4493. a) Calculate the NPV of the project without the flexibility. b) Suppose the total investment of 102 million (present value) may be disaggregated into 3 installments, as follows: 52 million in year 0, 21 million in year 1, and 33.075 million in year 2. In any year management has the option to "default" on its planned investment, at which point the project is terminated. What is the NPV for the project with this default option? c) What is the value of this default option?
An investment has an installed cost of $565,382. The cash flows over the four-year life of the investment are projected to be $194,584, $238,318, $186,674, and $154,313. If the discount rate is zero, what is the NPV? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. If the discount rate is infinite, what is the NPV? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. At what discount rate is the NPV just equal to zero? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
An investment has an installed cost of $787,350. The cash flows over the four-year life of the investment are projected to be $312,615, $304,172, $245,367, and $229,431. a. If the discount rate is zero, what is the NPV? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. If the discount rate is infinite, what is the NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations
A project that will provde annual cash flows of $2,550 for nine years costs $10,500 today. a. At a required return of 11 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.) b. At a required return of 27 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV b. NPV c. Discount rate
*A project costs $298 at t = 0 and generates unlevered after-tax cash flows of $53 per year forever. The project's unlevered cost of capital is 11.9%. The initial cost of the project is paid for with a combination of debt and equity. Debt contributes $87 and will earn interest at 4.8% forever. (The debt is perpetual, it never matures. Assume the debt tax shield cash flows have the same risk profile as the debt cash flows. The debt is fairly priced. All of the project NPV accrues to the equity holders.) The tax rate is 15% . What is the WACC of the levered project? Give your answer in percentage to the nearest 0.1 % . correct answer: 11.6
ABC Pty. has identified an opportunity in the market. The project requires an investment of R15726 in year 0 and no residual value after 3 years. Estimated future cash flows for the project are shown below in Rand. The company's required rate of return is 100*0.197%. Taxation can be ignored. Year 1 ***** 2 ***** 3 ***** Project 1 Rand Income: 12914*** 12914*** 13 000*** What is the discounted payback of the project at the required rate of return? Interpolate to find the year fraction, i.e. 1 year and 9 months will be 1.7500. Write your answer including four decimal places.
A project that provides annual cash flows of $16,800 for nine years costs $74,000 today. What is the NPV for the project if the required return is 8 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) NPV At a required return of 8 percent, should the firm accept this project? Аcсept Reject What is the NPv for the project if the required return is 20 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
A project costs $334 at t = 0 and generates unlevered after - tax cash flows of $51 per year forever. The project's unlevered cost of capital is 9.1%. The initial cost of the project is paid for with a combination of debt and equity. Debt contributes $72 and will earn interest at 5.4% forever. (The debt is perpetual, it never matures. Assume the debt tax shield cash flows have the same risk profile as the debt cash flows. The debt is fairly priced. All of the project NPV accrues to the equity holders.) The tax rate is 27%. What is the WACC of the levered project? Give your answer in percentage to the nearest 0.1%.
The Machin company wishes to invest in a project to maximize its sales. Which requires a Total Final Investment of $6658. A discount rate of 15% was valued. The projected cash flows are as follows: 1 2 3 $2,500.00 $3,700.00 $4,980.00 Calculate the internal rate of return, the present value, the net present value and its payback. The project is accepted or rejected, and why it reaches these conclusions
Border Mining, Inc., is trying to evaluate a project with the following cash flows: Year Cash Flow 0 −$ 39,300,000 1 63,300,000 2 − 12,300,000 a-1. What is the NPV for the project if the company requires a return of 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-2. Should the firm accept this project?

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