I Q1. There is an independent project of Ocean CO. (corporation) requires calculating Internal Rate of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
I Q1. There is an independent project of Ocean CO. (corporation) requires calculating Internal Rate of Return. This project cash outflow is $90,000 and the following are the cash inflows after tax but before depreciation. Years Cash Inflows (S) 1 40,000 2 14,000 3 25,000 4 20,000 5 15,000 Required: A) What is the IRR of this project? Do you accept/reject this project based on IRR considering the current pandemic scenario of the economy? Give elaborated explanation to your answer. [7 Marks] B) List and explain other issues other than IRR are relevant to the decision whether to invest or not in this project investment. [7 Marks] Q2. Middle East Corporation currently considering two projects for the investment. Based on ARR both projects are yielding 15% and 18% respectively, consider this as cost of capital. Finance Manager would like to use NPV and Pl to finalize the project section. Cash Inflows at the end of 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year Project A (S) ($150,000) 90,000 60,000 50,000 40,000 30,000 Project B (S) ($300,000) 90,000 50,000 70,000 90,000 100,000 You are required to: 1. Calculate NPV and PI and help the manager for taking right decision. Clearly explain the decision criteria. [7Marks] 2. This company is planning to invest $400,000 on each of these projects. Will there be any change in NPV & PI? Explain your answer with relevant calculations and examples. [7Marks] I Q1. There is an independent project of Ocean CO. (corporation) requires calculating Internal Rate of Return. This project cash outflow is $90,000 and the following are the cash inflows after tax but before depreciation. Years Cash Inflows (S) 1 40,000 2 14,000 3 25,000 4 20,000 5 15,000 Required: A) What is the IRR of this project? Do you accept/reject this project based on IRR considering the current pandemic scenario of the economy? Give elaborated explanation to your answer. [7 Marks] B) List and explain other issues other than IRR are relevant to the decision whether to invest or not in this project investment. [7 Marks] Q2. Middle East Corporation currently considering two projects for the investment. Based on ARR both projects are yielding 15% and 18% respectively, consider this as cost of capital. Finance Manager would like to use NPV and Pl to finalize the project section. Cash Inflows at the end of 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year Project A (S) ($150,000) 90,000 60,000 50,000 40,000 30,000 Project B (S) ($300,000) 90,000 50,000 70,000 90,000 100,000 You are required to: 1. Calculate NPV and PI and help the manager for taking right decision. Clearly explain the decision criteria. [7Marks] 2. This company is planning to invest $400,000 on each of these projects. Will there be any change in NPV & PI? Explain your answer with relevant calculations and examples. [7Marks]
Expert Answer:
Answer rating: 100% (QA)
Q1 Internal Rate of Return IRR Calculation and Decision To calculate the IRR of the project we need to find the discount rate that makes the present value of the cash inflows equal to the initial cash ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
think through alternatives to the criminalization of drugs. These are the sorts of changes that can take place to help end the War on Drugs. Vitale outlines a few of them: 1) Harm Reduction 2) Drug...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Because export taxes on food commodities are frequently seen as falling on foreign consumers, they tend to be favored as revenue sources by many countries. What assumptions are necessary for export...
-
A garden hose is attached to a water faucet on one end and a spray nozzle on the other end. The water faucet is turned on, but the nozzle is turned off so that no water flows through the hose. The...
-
Notch filters is a family of filters that includes the all-pass filter. For the filter (a) Determine the values of α 1 , α 2 , and K that would make H(z) an all-pass...
-
One guideline for implementing a successful empowerment strategy is that ____________. (a) delegation of authority should be left ambiguous and open to individual interpretation (b) planning should...
-
In an engagement to review the financial statements of a nonpublic company, SSARS require the accountant to obtain review evidence that is primarily based on inquiries and analytical procedures. The...
-
Find the limit: 5x+91-9 lim =1 2-2 x2 3x 10 - -
-
A bank categorizes its customers into one of three groups based on their banking habits. A random sample of 30 customers from each group was selected, and the number of times each customer visited...
-
Question S 1 pts On December 31, Ott Co. had investments in equity securities as follows: % Owned Investment Cost Fair value 12/31 3% Man Co. $10.000 5 11,000 19% Kemo, Inc. 9,000 Not readily...
-
Is the use of dual dating still relevant today given the requirements of obtaining sufficient, appropriate evidence?
-
What journal entry should be made to record a $50 price reduction given to a dissatisfied customer who previously purchased merchandise on account? The customer kept the merchandise. 2. A company...
-
Consider the element POTASSIUM: 1. Draw a Bohr Model diagram of a potassium atom. 2. Write the electronic configuration of potassium. 3. 4. Draw an energy level version of the electronic...
-
Under coordination of benefits, the patient may receive payment from multiple carriers, but the total received may not be more than ____% of the actual dental expenses. Group of answer choices 85 90...
-
2) Let X and Y be jointly continuous random variables with probability density function given by: (x+y) for 0 < < 3, and 0 < y <1 f(x, y) = 0 otherwise a) Find oxy. (/2) b) Find E(Xy). (/2) c) Use...
-
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's Returns, rB 2007 (18.00%) (14.50%) 2008 33.00 21.80 2009 15.00 30.50 2010 (0.50) (7.60) 2011 27.00 26.30 (i)...
-
Currently, there are five concepts of food stands, including: hot dogs, soft pretzels, turkey legs, sandwich wraps, and funnel cakes. This approach will double the existing number of food stands...
-
Steve Jackson (age 51) is a single taxpayer living at 3215 Pacific Dr., Del Mar, CA 92014. His Social Security number is 465-88-9415. In 2012, Steve's earnings and income tax withholding as the...
-
Jim is fired from his job as a waiter and decides to take an extended trip to Europe. After touring Europe for 3 months, Jim returns to look for a new job as a waiter. Are his job-hunting expenses...
-
Robert Ramos (age 36) is a single taxpayer, living at 8765 Bay Dr., Monterey, CA 93940. His Social Security number is 976-23-5132. Robert's earnings and income tax withholding as the manager of a...
-
Suppose that noncollege-graduates earn a salary of $25,000 per year in your hometown, and that salary will never change. If you go to college for four years, foregoing four years worth of that...
-
In 2002, Donnin Company had a break-even point of \($350,000\) based on a selling price of \($7\) per unit and fixed costs of \($140,000\). In 2003, the selling price and the variable cost per unit...
-
Ewing Company estimates that variable costs will be 50% of sales, and fixed costs will total \($800,000\). The selling price of the product is $4. Instructions (a) Prepare a CVP graph, assuming...
Study smarter with the SolutionInn App