AMP, Inc., has invested $2,165,800 on equipment. The firm uses payback period criteria of not accepting any project that takes more than four years to recover costs. The company anticipates cash flows of $448,386, $512,718, $563,755, $764,997, $816,500, and $825,375 over the next six years. What is the payback period?

OneClass: AMP, Inc., has invested $2,165,800 on equipment. The firm uses payback period criteria of n...

A manufacturing company is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 45% of sales. Indirect incremental costs are estimated at $95,000 a year. The project requires a new plant that will cost a total of $1,500,000, which will be a depreciated straight line over the next 5 years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000. Assume there is no need for additional investment in building the land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%. To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values. Assignment Guidelines: Using the information in the assignment description: Prepare a statement showing the incremental cash flows for this project over an 8-year period. Calculate the payback period (P/B) and the net present value (NPV) for the project. Answer the following questions based on your P/B and NPV calculations: Do you think the project should be accepted? Why? Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years. If the project required additional investment in land and building, how would this affect your decision? Explain. Your submitted assignment (125 points) must include the following: A double-spaced Word document of 2

indigomouse210

Calculating Payback. Global Toys Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them?

Year Cash Flow (A) Cash Flow (B)
0 â$55,000 â$ 95,000
1 19,000 18,000
2 27,000 26,000
3 24,000 28,000
4 9,000 260,000

Which Project should be accepted A or B?

a. The payback for Project A is: Payback =

b. The payback for Project B is: Payback =

c. Which project should be accepted:

____________________________________
Calculating AAR. Youâre trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $14 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,253,000, $1,935,000, $1,738,000, and $1,310,000 over these four years, what is the projectâs average accounting return (AAR)?

Calculating AAR, the average net income divided by the average book value. (Show work by calculating net income and average book value):

a. Average net income =

b. Average book value =

c. AAR =

_________________________________________

Calculating IRR. A firm evaluates all of its projects by applying the IRR rule. If the required return is 11 percent, should the firm accept the following project?

Year Cash Flow
0 â$153,000
1 78,000
2 67,000
3 49,000

Calculating IRR the interest rate that makes the NPV of the project equal to zero. (Show work by calculating IRR):

a. IRR =

b. Should the project be accepted and why?

________________________________

Calculating NPV. For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9 percent, should the firm accept this project? What if the required return was 21 percent?

Calculating NPV. Hint the NPV of a project is the PV of the outflows minus by the PV of the inflows. (Show work by calculating NPV):

a. @ 9% required return.

NPV@ 9% required return =

b. Should the project be accepted:

c. @ 21% required return.

NPV@ 21% required return =

d. Should the project be accepted:

orangecricket262

A manufacturing company is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 45% of sales. Indirect incremental costs are estimated at $95,000 a year. The project requires a new plant that will cost a total of $1,500,000, which will be a depreciated straight line over the next 5 years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000. Assume there is no need for additional investment in building the land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%. To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values. Assignment Guidelines: Using the information in the assignment description: Prepare a statement showing the incremental cash flows for this project over an 8-year period. Calculate the payback period (P/B) and the net present value (NPV) for the project. Answer the following questions based on your P/B and NPV calculations: Do you think the project should be accepted? Why? Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years. If the project required additional investment in land and building, how would this affect your decision? Explain. Your submitted assignment (125 points) must include the following: A double-spaced Word document of 2ï¿½3 pages that contains your calculation values, your complete calculations, any formulae that you used, and your answers to the two questions listed in the assignment guidelines. You must include your explanation of how you used Microsoft Excel for your calculations if applicable. TO RECEIVE ALL POINTS

indigomouse210

Unlock all answers

Related questions

Weekly leaderboard