Given the following cash flows for a capital project in Mango Cloths, calculate its payback period and discounted payback period. The required rate of return is 8%. 

Year         0 1 2 3 4 5

Cash Flow-50,000 15,000 15,000 20,000 10,000 5,000

Calculate the payback period.

 

Strawberry Corporation is considering an investment of 750 million won with expected after-tax cash inflows of 175 million won per year for seven years. The required rate of return is 10 percent. Calculate the project's payback period and discounted payback period in a year.

 

Banana. Inc has evaluated an investment proposal and found that its payback period is one year, it has a negative NPV, and it has a positive IRR. Is this combination of results possible? Why?

 

Apple. Tech is concerned that this project has multiple IRRs.

Year 0 1 2 3 

Cash Flow     -50           100 0           -50 

How many discount rates produce a zero NPV for this project? What are they?

 

With regard to capital budgeting, an appropriate estimate of the incremental cash flows from a project planned by Kiwi Company is least likely to include opportunity costs. Is the statement above correct?

 

Orange Corporation is investing $400,000 of fixed capital in a project that will be depreciated straight-line to zero over its ten-tear life. Annual sales are expected to be $240,000, and annual cash operating expenses are expected to be $110,000. An investment of $40,000 in net working capital is required over the project's life. The Orange Corporation income tax rate is 30%. Calculate the after-tax operating cash flow expected in year one.

 

An investment of $150,000 from Papaya. Co is expected to generate an after-tax cash flow of $100,000 in one year and another $120,000 in two years. The cost of capital is 10 percent. Calculate the internal rate of return.

 

Dragon Fruit Corporation is considering an investment of €375 million with expected after-tax cash inflows of €115 million per year for seven years and an additional after-tax salvage value of €50 million in Year 7. The required rate of return is 10 percent. Calculate the Profitability Index (PI) of the investment.

 

 

Projects 1 and 2 of Grape. Co has similar outlays, although the patterns of future cash flows are different. The cash flows as well as the NPV and IRR for the two projects are shown below. For both projects, the required rate of return is 10 percent.

Cash Flows

Year 0 1 2 3 4 NPV IRR

Project 1       -50 20 20 20 20 13.40 21.86%

Project 2       -50 0 0 0 100 18.30 18.92%

 

The two projects are mutually exclusive. Does invest in Project 1 is the appropriate investment decision because it has the higher IRR?

 

With regard to net present value (NPV) profiles, the point at which a profile crosses the vertical axis is best described as a project's internal rate of return when the Water Melon's project's NPV is equal to zero. Is the statement above correct?

 

After estimating a project's NPV, the analyst of Dragon Fruit. Co is advised that the fixed capital outlay will be revised upward by $100,000. The fixed capital outlay is depreciated straight-line over an 8-year life. The tax rate is 30 percent and the required rate of return is 10 percent. No changes in cash operating revenues, cash operating expenses, or salvage value are expected. What is the effect on the project NPV? How much its value?

 

QUESTION:

Outback Outfitters sells recreational equipment. One of the company's products, a small camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses associated with the stove total $108,000 per month.

 

Required:

Compute the break-even point in number of stoves and in total sales dollars. 

If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? Why? (Assume that the fixed expenses remain unchanged.)

At present, the company is selling 8,000 stoves per month. The sales manager is convinced that a 10 % reduction in the selling price would result in a 25 % increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. Show both total and per unit data on your statements.

Refer to the data in (3) above. How many stoves would have to be sold at the new selling price to yield a minimum net operating income of $ 35,000 per month?