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QUestions 1-12

10.1 Net present value: Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $325,000 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project? 10.2. Net present value: Kingston, Inc. management is considering purchasing a new machine at a cost of $4,133,250. They expect this equipment to produce cash flows of $814,322, $863,275, $937,250, $1,017,112, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? purchasing a new produce cash 0, and $1,225,000 rcent, what is the 10.3. Net present value: Crescent Industries management is planning to replace some machinery in its plant. The cost of the new equipment and the resulting cash flows the accompanying table. If the firm uses an 18 percent discount rate for projects li management go ahead with the project? nning to replace some existing e resulting cash flows are shown in ount rate for projects like this, should 10.4. Net present value: Franklin Mints, a confectioner, is looking to purchase a new jellybe making machine at a cost of $312,500. The company management projects that the ca flows from this investment will be $121,450 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project? to purchase a new jellybeanement projects that the cash n years. If the appropriate 10.5 Net present Value: Blanda Incorporated mangement is considering investing in two alt systems. The systems are mutually exclusive, and the cost of the new equipment and t shown in the accompanying table. If the firm uses a 9 percent discount rate for their pro system should the firm invest? Year 0 1 2 3 System System 1 2 Cash Flows Cash Flows (15,000.00) (45,000.00) 15,000.00 32,000.00 15,000.00 32,000.00 15,000.00 32,000.00 9.00% is considering investing in two alternative production e cost of the new equipment and the resulting cash flows are percent discount rate for their production systems, in which 10.6 Payback: Refer to Problem 10.5. What are the payback periods for productio mutually exclusive, and the the firm always chooses projects with the lowest pa firm invest? payback periods for production systems 1 and 2? If the systems are es projects with the lowest payback period, in which system should the 10.7 Payback: Quebec, Inc., is purchasing machinery at a cost of $3,768,966. The company' management expects the machinery to produce cash flows of $979,225, $1,158,886, an $1,881,497 over the next three years, respectively. What is the payback period? f $3,768,966. The company's of $979,225, $1,158,886, and the payback period? 10.8 Payback: Northern Specialties just purchased inventory-management computer soft $1,645,276. Cost savings from the investment over the next six years will produc eth flow stream: $212,455, $292,333, $387,479, $516,345, $645,766, and $618,325. Wh period on this investment? anagement computer software at a cost of t six years will produc ethe following cash 5,766, and $618,325. What is the payback 10.9 Payback: Nakamichi Bancorp has made an investment in banking software at a cost Management expects productivity gains and cost savings over the next several years. to generate cash flows of $586,212, $713,277, $431,199, and $318,697 over the next the investment's payback period? king software at a cost of $1,875,000. the next several years. If the firm is expected $318,697 over the next four years, what is 10.10 Average accounting return (ARR): Capitol Corp. management is expecting to gen of $63,435 over each of the next three years. The average book value of the compa that period will be $212,500. If the firm's acceptance decision on any project is base percent, should this project be accepted? agement is expecting to generate after-tax income ge book value of the company's equipment over cision on any project is based on an ARR of 37.5 10.11 Internal rate of return: Refer to problem 10.4. What is the IRR that Franklin Mints management can expect on this project? 10.4 Net present value: Franklin Mints, a confectioner, is looking to purchase a new jellybe making machine at a cost of $312,500. The company management projects that the ca flows from this investment will be $121,450 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project? RR that Franklin Mints to purchase a new jellybeanement projects that the cash n years. If the appropriate 10.12 Internal rate of return: Hathaway, Inc., a resort management company, is refurbishi at a cost of $7.8 million. The firm expects that this will lead to additional cash flows the next six years. What is the IRR of this project? If the appropriate cost of capital should they go ahead with this project? ement company, is refurbishing one of its hotels lead to additional cash flows of $1.8 million for he appropriate cost of capital is 12 percent