Please Complete The Following 5 Exercises Below In Ei 732730
Please Complete The Following 5 Exercises Below In Either Excel Or A W
Please complete the following 5 exercises below in either Excel or a Word document (but must be a single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.
1. Basic present value calculations
Calculate the present value of the following cash flows, rounding to the nearest dollar:
a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.
b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.
c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return.
d. An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return.
2. Cash flow calculations and net present value
On January 2, 20X1, Bruce Greene invested $10,000 in the stock market and purchased 500 shares of Heartland Development, Inc. Heartland paid cash dividends of $2.60 per share in 20X1 and 20X2; the dividend was raised to $3.10 per share in 20X3. On December 31, 20X3, Greene sold his holdings and generated proceeds of $13,000.
Greene uses the net-present-value method and desires a 16% return on investments.
a. Prepare a chronological list of the investment's cash flows.
b. Compute the investment's net present value, rounding calculations to the nearest dollar.
c. Given the results of part (b), should Greene have acquired the Heartland stock? Briefly explain.
3. Straightforward net present value and internal rate of return
The City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost has been calculated as follows: purchase cost: $450 per acre; site preparation: $175,000. The site can be used for 20 years before it reaches capacity. Bedford estimates that the new location will save $40,000 annually in operating costs.
a. Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the net-present-value method to determine your answer.
4. Straightforward net-present-value and payback computations
STL Entertainment is considering acquiring a sightseeing boat for summer tours along the Mississippi River. The following is available:
Cost of boat: $500,000
Service life: 10 summer seasons
Disposal value at end of 10 seasons: $100,000
Capacity per trip: 300 passengers
Fixed operating costs per season (including straight-line depreciation): $160,000
Variable operating costs per trip: $1,000
Ticket price: $5 per passenger
Assuming each trip is sold out with 120,000 passengers each season, ignore income taxes, and use a 14% return target, determine whether STL should acquire the boat using NPV.
5. Equipment replacement decision
Columbia Enterprises is studying replacing equipment that originally cost $74,000. The equipment can serve 6 more years if $8,700 of repairs are performed in 2 years. Annual operating costs total $27,200. Current equipment can be sold now for $36,000, with an estimated residual value of $5,000 in six years.
New equipment costs $103,000, has a 6-year life, residual value of $13,000, and reduces annual operating costs to $21,000.
Columbia's sales total $430,000 annually with either option. Management's minimum desired return is 12%.
a. Determine via NPV whether Columbia should keep its current equipment or buy new, rounding to the nearest dollar and ignoring taxes.
b. Discuss briefly why management believes that considering the time value of money is important in such decisions.
Paper For Above instruction
The following paper offers comprehensive financial analyses addressing five key investment and valuation exercises, including present value calculations, net present value (NPV), internal rate of return (IRR), and equipment replacement evaluations. These analyses demonstrate how organizations can utilize financial tools to inform strategic decisions, optimize investments, and enhance financial sustainability.
Introduction
Financial decision-making requires evaluating the present and future value of cash flows, assessing investment profitability, and considering the time value of money. This paper addresses practical problems faced by organizations through five exercises involving present value calculations, cash flow analysis, NPV, IRR, and equipment replacement considerations. Each exercise explores different aspects of financial analysis, providing insights into strategic investment decisions.
1. Present Value Calculations
The initial exercise involves calculating the present value (PV) of various cash flows under different discount rates. For example, a lump sum of $12,000 received in five years, discounted at 12%, involves using the PV formula:
PV = Future Value / (1 + rate)^n
Applying this formula: PV = 12,000 / (1 + 0.12)^5 ≈ $6,793 (rounded to the nearest dollar). Similar calculations for other cash flows incorporate the present value of annuities and uneven cash flows, demonstrating how discount rates influence the valuation of future cash receipts.
2. Cash Flow and NPV Analysis
Bruce Greene's investment illustrates the application of NPV in evaluating stock investments. The chronological cash flow list includes the initial purchase outlay, dividends received over three years, and the final sale proceeds. Using a discount rate of 16%, the NPV is computed by discounting each cash flow to its present value and summing these amounts. The analysis indicates whether the investment adds value per Greene's return criteria. The decision hinges on whether NPV is positive, guiding Greene's investment choices.
3. NPV and IRR for Landfill Project
The third exercise assesses a proposed landfill site using NPV analysis. The initial costs (purchase and preparation) are discounted, and future savings in operating costs are considered as annual cash inflows. Applying an 8% discount rate aligns with Bedford’s desired return, enabling evaluation of whether the present value of savings exceeds initial investments. If NPV is positive, the project is financially justified.
4. Investment in Sightseeing Boat
This analysis determines whether the acquisition of a sightseeing boat is financially feasible using NPV. Revenue is based on passenger capacity and ticket price, while costs include fixed and variable operating expenses. The cash flows over ten seasons are discounted at 14%, and the decision to proceed is based on whether the NPV is positive. This approach aids managers in evaluating capital investments related to service operations.
5. Equipment Replacement Decision
The final exercise involves comparing the costs and benefits of maintaining existing equipment versus purchasing new equipment. The analysis accounts for purchase costs, operational savings, residual values, and tax implications, with a focus on calculating NPV over six years at a 12% discount rate. The decision hinges on whether the NPV of purchasing new equipment exceeds that of keeping the old one, incorporating long-term cost savings and residual benefits.
Conclusion
These exercises exemplify how financial analysis tools—present value, NPV, IRR—support data-driven decision-making. They help organizations assess investments' profitability, optimize resource allocation, and ensure long-term sustainability. Moreover, understanding the importance of the time value of money emphasizes the need to incorporate forward-looking cost and benefit evaluations in strategic planning.
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