(c) obviously, by changing the discount rate, the values in the equation for net present value will change and hence the bet present value will change. It can also be deduced intuitively that on decreasing the discount rate, net present value will increase since the benefit terms are of more value($3000) and more in number (20) and more later in the timeline than the costs.
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6. The government is considering an early education project for children currently aged three. The project...
4. The government is contemplating a project that protects a wilderness area. The project's initial costs incurred at time t-0 equal S375,000. Starting in year 1, the project is expected to produce annual net benefits of S100,000 into perpetuity (a) Calculate the net present value assuming a discount rate of 8%. Do you recommend going forward with this project? (b)There is some uncertainty about the estimates of initial costs and annual net benefits Research suggests that there is a 75%...
Additional problems 1. Consider a plan to improve lighting on a dangerous section of highway. The improvements involve a one-time cost in year 1 of $5,000,000, would last 8 years, and are expected to reduce the annual number of accidents by 12. A recent report indicates that the average social cost of a motor vehicle crash is $77,000. a) b) Illustrate the timing of the benefits and costs using a timeline. Calculate the net present value of the project, assuming...
3. Suppose a project under consideration has the following stream of benefits and costs. Year O Costs $10,000 Benefits 4 S5,000 $2,000S4,000 S6,000 $8,000 S10,000 $2,000 (a) Find the net present value of the project assuming a discount rate of 5%. Is the project worthwhile? (b) Suppose you have discovered that the benefits of the project have been overestimated and a more accurate assessment suggests that the benefit in each year is half of the original estimate. Assuming a discount...
5. Suppose you are tasked with finding the net present value for two projects aimed at reducing traffic congestion. The government will undertake only one project, the project with the highest positive NPV. Assume the discount rate is 3.5%. Project A: involves building a connected series of paths (for biking and walking) throughout the city. The paths are expected to last about 10 years. The paths cost S350,000 to construct at t-0, and yield net (of operating costs) benefits of...
A firm is considering an expansion project that will last three years. The project requires an immediate purchase of a new equipment that costs $900,000. The equipment will be fully depreciated using straight-line method over the next three years. The resale price of the equipment at the end of year three is estimated to be $200,000. The project will generate annual sales of $750,000 and incur annual costs (all costs except depreciation expense) of $200,000 for each of the next...
(1) A firm is considering an expansion project that will last three years. The project requires an immediate purchase of a new equipment that costs $900,000. The equipment will be fully depreciated using straight-line method over the next three years. The resale price of the equipment at the end of year three is estimated to be $200,000. The project will generate annual sales of $750,000 and incur annual costs (all costs except depreciation expense) of $200,000 for each of the...
The company is considering a project involving a purchase of new equipment. Change the data area of your worksheet to match the following: Cost of new equipment needed: $370,000 Working capital needed: $45,000 Overhaul of equipment in four years: $30,000 Salvage value of equipment in five years: $25,000 Annual revenues and costs: Sales revenues: $430,000 Cost of goods sold: $250,000 Out-of-pocket operating costs: $70,000 Discount rate: 15% 1. What is the net present value of the project? 2. The internal...
Laurman, Inc. is considering the follwing project: *Please answer with functions* CD E 1 Laurman, Inc. is considering the following project 2 Required investment in equipment 3 Project life 4 Salvage value $ 1,750,000 5 years 225.000 $ 2,750,000 1.600.000 1,150.000 $ The project would provide net operating income each year as follows: 7 Sales 8 Variable expenses 9 contrition margin Contribution margin 10 Fixed expenses 11 Salaries, rent and other fixed out of pocket costs 12 Depreciation 13 Totalfixed...
Benefit-Cost Analysis Table Road Project Analysis Government XYZ is considering the addition of a tool road segment to the regional road system. The projected costs and benefits for it has been estimated and converted into monetary units. The resulting data is outlined in the Table below. Furthermore, the discount rate has been determined to be 7% based on the entity’s weighted average cost of capital (WACC). Based on a benefit-cost analysis, determine whether this “pilot project” will provide a net...
Please refrain from using excel thanks! 3) Small Inc. is considering the following project with the following annual cash flows. Year Cash Flow -S10 0 4 $9 $2 $3 -$5 What is the payback period for this project? What is the discounted payback period for this project if the discount rate is 20%? If Small Inc. has a cutoff period of 2 years, briefly explain if they would accept this project under the payback method? What about the discounted payback...