FINA 463 Study Guide - Midterm Guide: Capital Asset Pricing Model, United States Treasury Security, Earnings Before Interest And Taxes

164 views3 pages

greyox816

16 Mar 2017

School

Department

Finance

Course

FINA 463

Professor

John Hackney

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Npv and time value of money: what is the present value of the following stream of cash flows: in year 4, in year 5, and a growing perpetuity of in year 6. Assume a growth rate of 2% and a cost of capital of 8%. The pv is the maximum you would pay for a stream of cash flows. . 95 in this case: you are considering the effect of net working capital on net present value. You are looking at a five year investment. Under the old system, you needed to keep ; 000 in nwc for the five years. Under the new system, you only need to keep ; 000 in nwc for the five years. As usual, nwc is recoverable: what is the npv of switching from the old to the new system if your required return is. Explain the problem with the irr rule here.

Related Questions

An investment requires investing $3,000 today with a net working capital investment of $250. It has a net cash free cash flow of $1,200 for each of the next four years and also returns the NWC in year 4. Assume WACC is 8%. What is the NPV? IRR? PI?

erinferret328

5) Youâre considering investing in a project with the following characteristics:

The investment of $400 can be depreciated to zero book value over 10 years.

EBITDA in year 1 is equal to $100, and from there on is expected to grow at 5% per year, every year, forever.

NWC requirements are $100 in year 0, and expected to remain constant forever.

The discount rate for all cash flows is constant and equal to 20% per year.

Compute the NPV of the project if the tax rate is 0% per year. Is the IRR in this case higher or lower than 20%?

Compute the NPV of the project if the tax rate is 40% per year. Is the IRR in this case higher or lower than 20%?

fuchsiacoyote543

Suppose you are thinking to replace an old machine with a new one for your business. The old

machine cost you $100,000, and the new one costs $150,000. The new machine will be

depreciated on a three-year MACRS basis. The new machine has a 5-year life and a salvage

value of zero at the end of this period. The old machine was purchased 5 years ago, and it is being depreciated at the rate of $9,000 per

year. Its book value is $55,000, and its salvage value today is $65,000. You estimate that you

will be able to sell the old machine for $10,000 in 5 years, if you decide to not replace it.

The new machine will save you $50,000 per year. The tax rate is 40%, and the required rate of

return is 10%. Based on the NPV and IRR investment criteria, should you replace the old

machine? Should the cost of the old machine be included in your decision? Why or why

not? Calculate the Initial Investment of the project, and the Terminal Cash Flow of the

project.

This was the Excel format that we were given:

	Year 1	Year 2	Year 3	Year 4	Year 5
Cost Savings	$50,000	$50,000	$50,000	$50,000	$50,000
Depreciation New
Depreciation Old	$9,000	$9,000	$9,000	$9,000	$9,000
Increm
EBIT
Taxes
NI


Year	Year 0	Year 1	Year 2	Year 3	Year 4	Year5
OCF
NCS
Change in NWC
CCFA

NPV
IRR

carminelion581

FINA 463 Study Guide - Midterm Guide: Capital Asset Pricing Model, United States Treasury Security, Earnings Before Interest And Taxes

Document Summary

Get access

Related Documents

COMM 308 Study Guide - Midterm Guide: Normal Distribution, Risk Premium, Market Trend

FIN 302 Lecture Notes - Lecture 10: Historical Cost, Net Present Value, Annuity

FIN 401 Lecture Notes - Lecture 3: Sunk Costs, Preferred Stock, Capital Budgeting

Related Questions