Assume a 40000 investment and the following cash flows for two alternatives
1. Assume a $40,000 investment and the following cash flows for two alternatives.
Which alternative would you select under the payback method? Why?
2. You are asked to evaluate the following two projects for the Vana Corporation. Using the net present value method combined with the profitability index approach, which project would you select? Why? Use a discount rate of 10 percent. Next, calculate the Internal Rate of Return (IRR). What does the IRR mean?
3. You and a couple of your ASU fellow graduates have decided to form you own company. You wish to acquire bank financing to get your company off the ground. You are aware the bank will require a business plan. In the space below prepare a list describing the sections of information you will include in your plan. Note that an actual business plan is not required here; only the major bullet points you would include in the plan.
4. Given the following information, calculate the weighted average cost of capital for Skelly Corp.
Percent of capital structure:
5. Wrecks Construction Company is considering the purchase of a new machine for $500,000. The purchase of this machine will result in an increase in earnings before taxes of $150,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $25,000 after tax. In addition, it would cost $5,000 after tax to install this machine correctly. Also, management has determined an increase of $30,000 in net working capital will be necessary. This machine has an expected life of 10 years after which it will have a salvage value of $15,000. Assume simplified straight-line depreciation, that this machine has been depreciated down to zero, a 20% marginal tax rate, and required rate of return of 15%. Use the techniques as discussed in our class.
a.) What is the initial outlay associated with this project?
b.) What are the annual after-tax cash flows associated with this project for years 1 through 10?
c.) What is the terminal cash flow in your 10?
d.) Evaluate the acquisition of this project using net present value and internal rate return. Should this purchase take place? Why or why not?
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