Amanda James is the chief operating officer for the Omega Corporation-a computer services firm that specializes...
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Amanda James is the chief operating officer for the Omega Corporation-a computer services firm that specializes in airborne support. The company is considering four capital investment projects for the next year. Only one of the four projects under consideration can be chosen. Amanda considers that all projects are equally risky and therefore used 8% as the minimum acceptable rate of return. The company uses a straight-line method for calculating depreciation and the company's tax rate is 33%. Proposal -A: This proposal is to add a jet to the company's fleet. The plane was only six years old and was considered a good buy at $300,000. In return, the plane would bring over $600,000 in additional revenue during the next five years with only about $56,000 in operating costs. YR-0 YR-1 YR-2 YR-3 YR-4 YR-5 Initial investment (400,000) 112,300 225,000 168,750 11,250 Additional Revenue 76,800 11,250 60,000 60,000 43,000 Additional operating costs 11,250 11,250 11,250 60,000 Depreciation 60,000 60,000 1. Calculate the Cash flows for each of the proposals. 2. Calculate the following for each of the proposals in the case a. Payback period (PBP) b. Net Present value (NPV) c. What would happen if operating cost were 10% higher than expected? d. What would happen if operating costs were 10% lower than expected? Amanda James is the chief operating officer for the Omega Corporation-a computer services firm that specializes in airborne support. The company is considering four capital investment projects for the next year. Only one of the four projects under consideration can be chosen. Amanda considers that all projects are equally risky and therefore used 8% as the minimum acceptable rate of return. The company uses a straight-line method for calculating depreciation and the company's tax rate is 33%. Proposal -A: This proposal is to add a jet to the company's fleet. The plane was only six years old and was considered a good buy at $300,000. In return, the plane would bring over $600,000 in additional revenue during the next five years with only about $56,000 in operating costs. YR-0 YR-1 YR-2 YR-3 YR-4 YR-5 Initial investment (400,000) 112,300 225,000 168,750 11,250 Additional Revenue 76,800 11,250 60,000 60,000 43,000 Additional operating costs 11,250 11,250 11,250 60,000 Depreciation 60,000 60,000 1. Calculate the Cash flows for each of the proposals. 2. Calculate the following for each of the proposals in the case a. Payback period (PBP) b. Net Present value (NPV) c. What would happen if operating cost were 10% higher than expected? d. What would happen if operating costs were 10% lower than expected?
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Answer rating: 100% (QA)
formulas A E F G H 2 years Particulars 3 1 3 4 4 additional revenue 4300000 7680000 11230000 1125000 ... View the full answer
Related Book For
Organizational behavior
ISBN: 9780077379438
5th edition
Authors: Steven L. McShane, Mary Ann Von Glinow
Posted Date:
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