Question: Please complete the table (part 2a), with % factor, PV, and NPV, and please explain the process. Also, 2b, 3a, and 3b please. I need
Please complete the table (part 2a), with % factor, PV, and NPV, and please explain the process. Also, 2b, 3a, and 3b please. I need to check my work. Thanks!
| Situation:Dogs R Us is considering two investment opportunities. | |||||||||||
| Use the following information to compute the (a) net present value and (b) project profitability index for two potential capital budgeting projects. | |||||||||||
| Project A | Project B | ||||||||||
| Cost of equipment: | $114,000 | Cost of equipment: | $279,000 | ||||||||
| Working capital investment required: | $28,000 | Working capital investment required: | $39,000 | ||||||||
| Annual cash inflows: | $ 21,000 | Annual cash inflows: | $51,853 | ||||||||
| Salvage value of equipment in 12 years | $14,000 | Salvage value of equipment in 10 years | $ 18,000 | ||||||||
| Life of the project | 12 years | Life of the project | 10 years | ||||||||
| The company's required rate of return for all projects is 11%. | |||||||||||
| At the end of each project, the working capital will be released. | |||||||||||
| (a) Compute the net present value of the projects. Round any decimals to the nearest dollar. Should each project be accepted? | |||||||||||
| Years | Cash Flows | % Factor | PV | Years | Cash Flows | % Factor | PV | ||||
| Cost of equipment | Now | (114,000) | Cost of equipment | Now | (279,000) | ||||||
| Working capital required | Now | (28,000) | Working capital required | Now | (39,000) | ||||||
| Annual net cash receipts | 1-12 | 21,000 | Annual net cash receipts | 1-10 | 51,853 | ||||||
| Salvage value of equipment | 12 | 14,000 | Salvage value of equipment | 10 | 18,000 | ||||||
| Working capital released | 12 | 28,000 | Working capital released | 10 | 39,000 | ||||||
| NPV | NPV | ||||||||||
| (b) Compute the project profitability index for each investment opportunity. Where necessary, carry computations to two decimal places. Which project is more desirable and why? | |||||||||||
| Part 3: | |||||||||||
| Situation:Dogs R Us is considering two investment opportunities. | |||||||||||
| Use the following information to compute the internal rate of return for two potential capital budgeting projects. | |||||||||||
| Project A | Project B | ||||||||||
| Cost of equipment: | $41,258 | Cost of equipment: | $53,582 | ||||||||
| Annual cash inflows: | $9,807 | Annual cash inflows: | $11,550 | ||||||||
| Each machine would have an 8 year useful life and no salvage value. The company has a minimum required rate of return of 11%. | |||||||||||
| a. Compute the internal rate of return. | |||||||||||
| Project A: Internal Rate of Return = | Project B: Internal Rate of Return = | ||||||||||
| b. Would the company be willing to accept either of these projects? Explain. | |||||||||||
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