2024 – Net Present value Calculation Dowling Sportswear is considering building a new factory to produce aluminum baseball

Nt value calculations – 2024

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  1. (Net Present value Calculation) Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $4,000,000 and would generate annual net cash inflows of $1,200,000 per year for 9 years. Calculate the project’s NPV using a discount rate of 7 percent. 

    If the discount rate is 7 percent, then the project’s NPV is $………..

     

  2. Generate net cash inflows

    (Net present value calculation) Big Steve’s, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $110,000 and will generate net cash inflows of $20,000 per year for 9 years.

     

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  1. What is the Project’s NPV using a discount rate of 7 percent? Should the project be accepted? Why or why not?

  2. Discount rate

    What is the project’s NPV using a discount rate of 14 percent? Should the project be accepted? Why or why not?

  3. What is this project’s internal rate of return? Should the project be accepted?  Why or why not?

  4. If the discount rate is 7 percent, then the project’s NPV is $……………

     

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  1. (Payback period, net present value, profitability index, and internal rate of return calculations) You are considering a project with an initial cash outlay of $88,000 and expected cash flows of $23,760 at the end of each year for six years. The discount rate for this project is 10.2 percent.

     

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  1. Discounted payback periods

    What are the project’s payback and discounted payback periods?

  2. What is the project’s NPV?

  3. What is the project’s OI?

  4. What is the project’s IRR?

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The payback period of the project is …………. Years

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  1. (Identifying incremental revenues from new product innovations) Morten Fod Products, Inc. is a regional manufacturer of salty food snacks. The firm competes directly with the national brands including Frito-Lay, but only in the U.S Southeast. Last year Morten sold $300 million of its various chip products and hopes to increase its sales in the coming year by offering a new line of baked chips.

    The new product line is expected to generate $36 million in sales next year. However, the firm’s analysts estimate that about 60 percent of these revenues will come from existing customers who switched their purchases from one of the firm’s existing products to the new healthier baked chips.

     

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  1. What level of incremental should the company analyst attribute to the new line of the baked chips”?

  2. Assume that 30% of Morten’s exiting customers are actively looking for healthier snack alternative and will move to another company’s baked chip offering if Morten does not introduce the new product.

  3. The level of incremental sales that the company analyst should attribute to the new line of baked chips is $……….

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  1. (Calculating changes in net operating working capital) Duncan Motors is introducing a new product and has an expected change in net operating income of $290,000. Duncan Motors has a 31 % marginal tax rate. This project will also produce $53,000 depreciation per year.

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Without the Project

With the Project

Accounts receivable

$36,000

$21,000

Inventory

$29,000

$34,000

Accounts payable

$46,000

$88,000

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  1. What is the project’s free cash flow in year 1?

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