Question 1. Muncy, Inc., is looking to add a new machine at a cost of $4,133,250

Question

Question 1.

Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $815,322, $863,275, $937,250, $1,020,110, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?

Question 2.

An investment of $83 generates after-tax cash flows of $42.00 in Year 1, $66.00 in Year 2, and $131.00 in Year 3. The required rate of return is 20 percent. The net present value is

Question 3

McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $817,500, and $1,245,000 over the next three years. What is the payback period for this project?

Explanation / Answer

Question 1.

Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $815,322, $863,275, $937,250, $1,020,110, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?

NPV = -$4,133,250 + $815,322/1.15 + $863,275/1.15^2 + $937,250/1.15^3 +$1,020,110/1.15^4 + $1,212,960/1.15^5 + $1,225,000/1.15^6

NPV = -439,349.33

Question 2.

An investment of $83 generates after-tax cash flows of $42.00 in Year 1, $66.00 in Year 2, and $131.00 in Year 3. The required rate of return is 20 percent. The net present value is

The net present value = -$83 + $42/1.20 + $66/1.20^2 + $131/1.20^3

The net present value = $ 73.64

Question 3

McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $817,500, and $1,245,000 over the next three years. What is the payback period for this project?

payback period for this project = 2 + 507500/1245000

payback period for this project = 2.41 Year

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