The R.M. Company uses the following risk-adjusted discount rates for capital budgeting purposes: Investments in new...
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The R.M. Company uses the following risk-adjusted discount rates for capital budgeting purposes: Investments in new product lines Substitution of labour with capital (machinery) Expansion of existing product lines Replacement of existing equipment The firm has $1,000,000 of available capital for investment. Project X involves the production of a brand new product line. Project Y involves the replacement of existing machinery. Project Z involves the purchase of a more sophisticated piece of equipment as a replacement for existing machinery. This more sophisticated machine will enable R.M. Company to reduce the size of its workforce. There are no other projects available at this time. Expected cash flows for these independent projects are as follows: Projects Investment (today) Net after-tax cash inflows Year 1 Year 2 Year 3 Year 4 X 15% 11% 13% 9% 800 320 300 280 260 Y (in thousands of dollars) 1,000 260 300 360 420 Z 200 60 80 100 120 Which project(s) would you recommend the company undertake? Show your calculations and provide any necessary explanations. (4 marks) Question 2 (4 marks) The R.M. Company uses the following risk-adjusted discount rates for capital budgeting purposes: Investments in new product lines Substitution of labour with capital (machinery) Expansion of existing product lines Replacement of existing equipment The firm has $1,000,000 of available capital for investment. Project X involves the production of a brand new product line. Project Y involves the replacement of existing machinery. Project Z involves the purchase of a more sophisticated piece of equipment as a replacement for existing machinery. This more sophisticated machine will enable R.M. Company to reduce the size of its workforce. There are no other projects available at this time. Expected cash flows for these independent projects are as follows: Projects Investment (today) Net after-tax cash inflows Year 1 Year 2 Year 3 Year 4 X 15% 11% 13% 9% 800 320 300 280 260 Y (in thousands of dollars) 1,000 260 300 360 420 Z 200 60 80 100 120 Which project(s) would you recommend the company undertake? Show your calculations and provide any necessary explanations. (4 marks) Question 2 (4 marks) The R.M. Company uses the following risk-adjusted discount rates for capital budgeting purposes: Investments in new product lines Substitution of labour with capital (machinery) Expansion of existing product lines Replacement of existing equipment The firm has $1,000,000 of available capital for investment. Project X involves the production of a brand new product line. Project Y involves the replacement of existing machinery. Project Z involves the purchase of a more sophisticated piece of equipment as a replacement for existing machinery. This more sophisticated machine will enable R.M. Company to reduce the size of its workforce. There are no other projects available at this time. Expected cash flows for these independent projects are as follows: Projects Investment (today) Net after-tax cash inflows Year 1 Year 2 Year 3 Year 4 X 15% 11% 13% 9% 800 320 300 280 260 Y (in thousands of dollars) 1,000 260 300 360 420 Z 200 60 80 100 120 Which project(s) would you recommend the company undertake? Show your calculations and provide any necessary explanations. (4 marks) Question 2 (4 marks) The R.M. Company uses the following risk-adjusted discount rates for capital budgeting purposes: Investments in new product lines Substitution of labour with capital (machinery) Expansion of existing product lines Replacement of existing equipment The firm has $1,000,000 of available capital for investment. Project X involves the production of a brand new product line. Project Y involves the replacement of existing machinery. Project Z involves the purchase of a more sophisticated piece of equipment as a replacement for existing machinery. This more sophisticated machine will enable R.M. Company to reduce the size of its workforce. There are no other projects available at this time. Expected cash flows for these independent projects are as follows: Projects Investment (today) Net after-tax cash inflows Year 1 Year 2 Year 3 Year 4 X 15% 11% 13% 9% 800 320 300 280 260 Y (in thousands of dollars) 1,000 260 300 360 420 Z 200 60 80 100 120 Which project(s) would you recommend the company undertake? Show your calculations and provide any necessary explanations. (4 marks) Question 2 (4 marks)
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Project X Riskadjusted discount rate 15 Year 1 Net AfterTax Cash Inflow 320 Present Value Factor 15 1 1 0151 08696 Present Value 320 08696 27827 Year ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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