Net Present Value and New Machine - 1450 Words

DEPARTMENT OF ACCOUNTING AND FINANCE AFC2140 CORPORATE FINANCE MID-SEMESTER TEST FIRST SEMESTER 2012 SURNAME (FAMILY NAME)_____________________________________________ GIVEN NAME(S)______________________________________________________ ID NUMBER__________________________________________________________ TUTOR’S NAME______________________________________________________ TUTORIAL DAY AND TIME______________________________________________ INSTRUCTIONS: TIME ALLOWED: 90 MINUTES WRITING TIME AND 5 MINUTES READING TIME †¢ CLOSED BOOK TEST †¢ ANSWER ALL 3 QUESTIONS (AND IN THE SPACES PROVIDED) †¢ A FORMULA SHEET IS INCLUDED AT THE BACK OFFICE USE ONLY QUESTION 1 2 3 TOTAL (OUT OF 60) MARK Question 1 (30†¦show more content†¦It has just paid a dividend of $3.00. If the required rate of return is 15 percent per annum, what is the price of the share three years from now? A. $58.31 B. $46.29 C. $51.02 D. $47.50 Page 4 of 13 11. In evaluating capital projects, the decisions using the NPV method and the IRR method may disagree if A. the projects are independent. B. the cash flows pattern is unconventional. C. the projects are mutually exclusive. D. both B and C. 12. Jamaica Company is adding a new assembly line at a cost of $8.5 million. The company expects the project to generate cash flows of $2 million, $3 million, $4 million, and $5 million over the next four years. Its cost of capital is 16 percent per annum. What is the MIRR on this project? (Round to the nearest percent.) A. 18% B. 19% C. 20% D. 21% 13. The profitability index for a project is 1.18. If the project will produce cash inflows of $60,000 per annum for the next 12 years, what is the initial outlay for the project if the appropriate discount rate is 5 percent per annum? (Round to the nearest $10.) A. $450,670 B. $627,520 C. $1,016,950 D. none of the above 14. Gilligan s Boat Tours finds that if it were to increase its price by 10 percent, it would have a 6 percent reduction in the NPV of its new 3-Hour Tour. Gilligan s analysis could be described as A. a Monte Carlo simulation. B. break even analysis. C. sensitivity analysis. D. none of the above. 15. Toki Ltd. had a degree ofShow MoreRelatedChapter 11 Problems Essay651 Words   |  3 Pagesfollowing two separate investments (round the payback period to two decimals): 1. A new operating system for an existing machine is expected to cost $260,000 and have a useful life of five years. The system yields an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000. Payback period =Cost of investment/ Annual net cash flow =$260,000/ $125,000 =2.08 years Annual depreciation = $260,000 -$10,000Read MoreNet Present Value and Net Cash Flow1220 Words   |  5 Pagespromptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive net present value? d Will an investment have an adverse effect on the environment? 3 Which of the following is not considered when using the payback period to evaluate an investment? a The profitability of the investment over its entire life. b The annual net cash flow of the investment. c The cost of the investment. d The expected life of the investment. Use the following dataRead MoreIf the Coat Fits Wear It1273 Words   |  6 Pagesreport indicating whether ISGC should replace the existing machine or not. Indicate how would you proceed (without making any calculations)? I would estimate the incremental cash flows over the economic life of the new machine, taking into consideration the after-tax salvage values of the old and new machine respectively. Changes in net working capital would be figured in as well. For the terminal year, we would assume that the net working capital is recovered and treat it as a cash inflowRead MoreIf the Coat Fits Wear It1282 Words   |  6 Pagesbudgeting report indicating whether ISGC should replace the existing machine or not. Indicate how would you proceed (without making any calculations)? I would estimate the incremental cash flows over the economic life of the new machine, taking into consideration the after-tax salvage values of the old and new machine respectively. Changes in net working capital would be figured in as well. For the terminal year, we would assume that the net working capital is recovered and treat it as a cash inflow.Read MoreAcct 505 Week 8 Final Exam (Version 2)1092 Words   |  5 Pagessegment of a business responsible for both revenues and expenses would be called: 4. All other things being equal, if a divisions traceable fixed expenses increase: 5. In computing the margin in a ROI analysis, which of the following is used? 6. Net operating income is defined as: 7. Suppose a manager is to be measured by residual income. Which of the following will not result in an increase in the residual income figure for this manager, assuming other factors remain constant? 8. During AprilRead MoreQuiz 7 Cost Accounting1450 Words   |  6 Pagesï » ¿Name: ________________________ Class: ___________________ Date: __________ Quiz 7 1) Which of the following involves significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities? A) capital budgeting B) working capital C) master budgeting D) project-cost budgeting Answer: A Diff: 1 Terms: capital budgeting Objective: 1 AACSB: Reflective thinking 2) The two factors capital budgeting emphasizesRead MoreOperations Management Week 1 Discussion Questions Essay586 Words   |  3 Pagespurchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $1500 initially, and then $400 per year in maintenance costs. Machine B costs $2000 initially, has a life of three years, and requires $300 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 6% and the tax rate is zero.   Year | 0 | 1 | 2 | 3 | Machine As Cash Flows | 1Read MoreLockerheed Tristar Case Study1587 Words   |  7 Pagesregarding these methods, with the most commonly used being Internal Rate of Return (IRR) and Net Present Value (NPV). Each method encompasses positives and negatives; however if either are used without fully understanding what their prospective results reveal, mistakes can be made and under-estimations of return will happen. In a recent case Lockheed Martin chose to use the Internal Rate of Return to value their Tri Star project. We have determined this to be a mistake and, through this case analysisRead MoreValue Of The Machine After Five Years1238 Words   |  5 Pagesoccur when using the new office machine. The net cash flow for the length of ownership of the machine is displayed in Figure 4.0. As you can see at year zero which is the total investment Figure 4.0 Year Net Cash Flow 0 $ (504,860.00) 1 $ 924,690.00 2 $ 993,719.55 3 $ 1,048,316.95 4 $ 1,108,505.39 5 $ 1,443,078.11 period the net cash flow is negative five hundred and four thousand, eight hundred and sixty dollars. As the company continues to use the machine over their five yearRead Morech21 sample questions698 Words   |  3 Pages! !! CHAPTER 21! Sample Exam Questions! ! 1. [CPA Adapted] If the algebraic sum of the present values of all cash flows related to a proposed capital expenditure discounted at the company’s required rate of return is positive, it indicates that the! A. resultant amount is the maximum that should be paid for the asset.! B. discount rate used is not the proper required rate of return for this company.! C. investment is the best alternative.! D. return on the investment exceeds the company’s required