Question 1

NPV for varying costs of capitalLePew Cosmetics is evaluating a newfragrance-mixing machine. The machine requires an initial investment of $380,000 and will generateafter-tax cash inflows of $63,050 per year for 8 years. If the cost of capital is 9%, calculate the net present value(NPV) and indicate whether to accept or reject the machine.

The NPV of the project is $______ (Round to the nearestcent.)

Question 2

NPV for varying costs of capitalLePew Cosmetics is evaluating a newfragrance-mixing machine. The machine requires an initial investment of $360,000 and will generateafter-tax cash inflows of $62,650 per year for 8 years. If the cost of capital is 10%, calculate the net present value(NPV) and indicate whether to accept or reject the machine.

The NPV of the project is $______ (Round to the nearestcent.)

Question 3

NPVMutually exclusive projectsHook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The relevant cash flows associated with each are shown in the followingtable:

Initial investment (CF0) Machine A Machine B Machine C

$84,500 $59,700 $130,500

Year(t) Cash inflows (CFt)

1 $17,500 $12,300 $49,800

2 $17,500 $13,700 $29,900

3 $17,500 $16,100 $19,700

4 $17,500 $17,800 $20,500

5 $17,500 $20,300 $20,000

6 $17,500 $24,500 $30,000

7 $17,500 ___ $39,600

8 $17,500 ___ $50,300

Thefirm's cost of capital is 8%.

a.Calculate the net present value (NPV) of each press.

b.UsingNPV, evaluate the acceptability of each press.

c.Rank the presses from best to worst using NPV.

d.Calculate the profitability index(PI) for each press.

e.Rank the presses from best to worst using PI.

Question 4

NPV and EVAA project cost $2.2 million up front and will generate cash flows in perpetuity of $300,000. Thefirm's cost of capital is 12%.

a.Calculate theproject's NPV.

b.Calculate the annual EVA in a typical year.

c.Calculate the overall project EVA.

Question 5

Internal rate of returnFor the project shown in the followingtable,

Initial investment (CF0 $130,000

Year (t) Cash inflows (CFt)

1 $35,000

2 $25,000

3 $50,000

4 $50,000

5 $10,000

calculate the internal rate of return (IRR). Thenindicate, for theproject, the maximum cost of capital that the firm could have and still find the IRR acceptable.

Theproject's IRR is ______%. (Round to two decimalplaces.)

Question 6

Internal rate of returnPeace ofMind, Inc.(PMI) sells extended warranties for durable consumer goods such as washing machines and refrigerators. When PMI sells an extendedwarranty, it receives cash up front from thecustomer, but later PMI must cover any repair costs that arise. An analyst working for PMI is considering a warranty for a new line ofbig-screen TVs. A consumer who purchases the 2-year warranty will pay PMI $208. Onaverage, the repair costs that PMI must cover will average $102 for each for thewarranty's 2 years. If PMI has a cost of capital of 6%, should it offer this warranty forsale?

Question 7

NPV and IRRBenson Designs has prepared the following estimates for along-term project it is considering. The initial investment is $17,730, and the project is expected to yieldafter-tax cash inflows of $3,000 per year for 9 years. The firm has a cost of capital of 15%.

a.Determine the net present value(NPV) for the project.

b.Determine the internal rate of return(IRR) for the project.

c.Would you recommend that the firm accept or reject theproject?