Primus Corp. management is planning to convert an existing warehouse into a new plant that will increase
Question:
Primus Corp. management is planning to convert an existing warehouse into a new plant that will increase its production capacity by 45 percent. The cost of this project will be $7,125,000. It will result in additional cash flows of $1,875,000 for the next eight years. The discount rate is 12 percent.
a. What is the payback period?
b. What is the NPV for this project?
c. What is the IRR?
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
a Year Project 1 Cumulative CF 0 7125000 7125000 1 1875000 5250000 2 1875000 3375000 ...View the full answer
Fundamentals of Corporate Finance
ISBN: 978-1119371403
4th edition
Authors: Robert Parrino, David S. Kidwell, Thomas Bates
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 Business questions
-
Primus Corp. is planning to convert an existing warehouse into a new plant that will increase its production capacity by 45 percent. The cost of this project will be $7,125,000. It will result in...
-
Quasar Tech Co. management is investing $6 million in new machinery that will produce the next-generation routers. Sales to its customers will amount to $1,750,000 for the next three years and then...
-
MusicHeaven,Inc., is a producer of media players which currently have either 20 gigabytes or 30 gigabytes of storage. Now the company is considering launching a new production line making mini media...
-
The RRR Company has a target current ratio of 2.4. Presently, the current ratio is 3.3 based on current assets of $6,567,000. If RRR expands its inventory using short- term liabilities (maturities...
-
Reconsider the following problem from Chapter 1: A four-year financial project is forecast to have net cash inflows of $20,000; $25,000; $30,000; and $50,000 in the next 4 years. It will cost $75,000...
-
1. What type of competitive strategy, low-cost, differentiation, focus or hybrid, would you suggest as a way of competing with Vanguard? 2. Using webcam chats is one approach to lower costs in...
-
Do Modes contain States or do States contain Modes?
-
Valtec Electronics fills orders for its electronic components and parts by truck to customers through several distribution centers. A measure of its supply chain responsiveness is order fulfillment...
-
Solomon Manufacturing Company established the following standard price and cost data. Sales price Variable manufacturing cost Fixed manufacturing cost $ 8.50 per unit Fixed selling and administrative...
-
Micro Technologies sells two products: X and Y. The selling price, variable cost, and sales mix for the products are presented in the table below. Product Unit Sales Price Unit Variable Cost...
-
Sinking air warms, and yet the downdrafts in a thunderstorm are cold. Why?
-
Tornadoes form in the regions of a strong updraft, and yet they descend from the base of a cloud. Explain.
-
Describe the OSI model. In which layer(s) does CDPD operate?
-
Search the Internet for a U.S. 801(k) plan. Explain what it is.
-
Sengupta died on February 1, 20X14, and bequeathed two different assets to a beneficiary, Roberts. Asset One was distributed to Roberts on April 24, 20X14; Asset Two was distributed to Roberts on...
-
Aaron, age 55, has an adjusted gross income in 20X4 of $30,000. His expenses are as follows: What is Aarons itemized deduction for medical expenses? a. $0 b. $1,500 c. $2,000 d. $4,500...
-
Jason was a man with a plan. Immediately after graduating from college, he created his own cleaning company. He started off cleaning houses doing all of the dirty work by himself, but over time, he...
-
On average, how often did you watch educational television (for example, Sesame Street) or use educational media (e.g., computer games, apps) when you were a child? (circle one) Not at All | Very...
-
Determine the moments at B and C, then draw the moment diagram for the beam. Assume the supports at B and C are rollers and A and D are pins. EI is constant. 12 kN/m 12 kN/m A 4 m 6 m 4 m
-
Problem 3.5 (4 points). We will prove, in steps, that rank (L) = rank(LT) for any LE Rnxm (a) Prove that rank (L) = rank (LTL). (Hint: use Problem 3.4.) (b) Use part (a) to deduce that that rank(L) =...
-
Calculating Number of Periods One of your customers is delinquent on his accounts payable balance. Youve mutually agreed to a repayment schedule of $300 per month. You will charge .9 percent per...
-
Calculating EAR Friendlys Quick Loans, Inc., offers you three for four or I knock on your door. This means you get $3 today and repay $4 when you get your paycheck in one week (or else). What the...
-
Valuing Perpetuities Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,200 monthly. The contract currently sells for $63,000. What is the monthly return on this investment...
-
Implement the definition of the function rotate ToLeft(), member of the DArray class, so that it rotates all the elements of the array object to the left by one position. Example: [6, 2, 5, 3] [2, 5,...
-
Write the definition of the of the function is Full() as a member function of the DArray class. The function returns true if the array is full, or false otherwise. Functions.cpp 1 #include "DArray.h"...
-
Write a program that will calculate the trajectory of a golf ball thrown with a velocity of 25.6 m/s at an angle of 0 = 35 relative to the horizontal, from a hill that is 2.1 meters above the ground...
Study smarter with the SolutionInn App