Crowell Company is considering two capital investments. Both investments have an initial cost of $ 6,000,000 and
Question:
Crowell Company is considering two capital investments. Both investments have an initial cost of $ 6,000,000 and total net cash inflows of $ 10,000,000 over 10 years. Crowell requires a 12% rate of return on this type of investment. Expected net cash inflows are as follows:
Requirements
1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue?
2. Explain the relationship between NPV and IRR. Based on this relationship and the company's required rate of return, are your answers as expected in Requirement 1? Why or why not?
3. After further negotiating, the company can now invest with an initial cost of $ 5,500,000. Recalculate the NPV and IRR. Which plan, if any, should the company pursue?
Year Plan Alpha Plan Beta 1,000,000 1,000,000 1,000,000 1,0001,500,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 4 1,500,000 1,000,000 800,000 700,000 600,000 500,000 400,000 $10,000,000 6 9 10 Total 10,000,000
Step by Step Answer:
Requirement 1 Microsoft Excel Formulas Plan Alpha Plan Beta Net present value NPV 349777 rounded 306286 rounded Internal rate of return IRR 1056 rounded 1351 rounded Based on the foregoing the company ...View the full answer
Horngrens Financial and Managerial Accounting
ISBN: 978-0133255584
4th Edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
Students also viewed these Corporate Finance questions
-
The capital investment committee of Arches Landscaping Company is considering The capital investment committee of Arches Landscaping Company is considering The capital investment committee of Arches...
-
The management of Quest Media Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The radio station requires an investment of $999,250,...
-
A delivery company is considering two different vehicles for large custom-designed beams for construction. The first vehicle is specially designed for this service and, with necessary maintenance,...
-
What minimum force f , applied horizontally to the wheel axis, is needed to bring the wheel up to the height step h ? Tomer as the wheel radius and w as its weight. Tip: apply the equilibrium...
-
The nitrogennitrogen bond distance in N2 is 109 pm. On the basis of bond orders, would you expect the bond distance in N2+ to be less than or greater than 109 pm? Answer the same question for N2.
-
A firm is experiencing a temporary period of financial distress as the result of a hurricane that has hit its local area. Because many of the firms customers have been severely hurt by the hurricane,...
-
The data in Table B. 5 present the performance of a chemical process as a function of several controllable process variables. a. Fit a multiple regression model relating $\mathrm{CO}_{2}$ product...
-
The article GM to Take Charge of $ 20.8- Billion here reproduced from The Globe and Mail ( February 2, 1993) describes the potential impact of SFAS 106, Accounting for Postretirement Benefits Other...
-
1 . RATIO ANALYSIS You will need to know the formula for each ratio, how to interpret each ratio, and have each ratio computed for 1 3 8 Student Living Inc. annual financial data. If you cannot...
-
1. What is Boston Pizza's value proposition? 2. Does Boston Pizza's value proposition extend beyond customers and into the community in which it has a location? 3. To which marketing segments does...
-
Metz Manufacturing, Inc. has a manufacturing machine that needs attention. The company is considering two options. Option 1 is to refurbish the current machine at a cost of $ 1,000,000. If...
-
You are planning for an early retirement. You would like to retire at age 45 and have enough money saved to be able to withdraw $ 240,000 per year for the next 30 years ( based on family history, you...
-
A fish tank is 24.2 in. long, 15.9 in. deep, and 14.8 in. high. What is the maximum volume of water, in liters, that the fish tank can hold?
-
Discuss the leadership clarity formula and how you will use it in the future.
-
We first assume thewind is uniform (w =constant,w1 = 0).Write the expression of the velocity of the boat along the axis of the wind vx = x in terms of w and h(tan ). For what values of and z is this...
-
What is a resistant pattern you see in another person?
-
Write a C code for circular queue implementation using linked list?
-
What would make the work environment more conducive to collaboration?
-
What is the net torque of the bar shown in Figure P7.13, about the axis indicated by the dot? 8.0 N 25 cm FIGURE P7.13 75 cm 10 N
-
State whether each of the following will increase or decrease the power of a one-way between-subjects ANOVA. (a) The effect size increases. (b) Mean square error decreases. (c) Mean square between...
-
Classify these Bluetooth layers using the OSI model: a. baseband; b. L2CAP; c. RFCOMM.
-
The August 31 bank statement of Well Healthcare has just arrived from United Bank. To prepare the bank reconciliation, you gather the following data: a. The August 31 bank balance is $4,540. b. The...
-
Pendley Productions makes all sales on credit. Cash receipts arrive by mail. Larry Chipello, the mailroom clerk, opens envelopes and separates the checks from the accompanying remittance advices....
-
On September 1, Party Salad Dressings creates a petty cash fund with an imprest balance of $600. During September, Michael Martell, the fund custodian, signs the following petty cash tickets: On...
-
tableau: Consider solving a minimization linear program in standard form with current T1 x2 X3 x4 X5 27 W 0 1 0 r 1 0 3 2 0 0 1 -2 2 S -1 3 1 0 0 0 -1 2 1 2 = 0 0 0 0 t -3 u V The bold-red letter...
-
Calculate 3 different investment options for your client, while only changing the Monthly Payment (P) amount. The interest rate will be fixed at 6%, and the time will be fixed at 20 years. 1) How...
-
What are the current healthcare financing models in Argentina and what is the current state of health financing? How is money accumulated (ie. tax-based? employer-based? etc.)? What are the payment...
Study smarter with the SolutionInn App