6. Sister Pools sells outdoor swimming pools and currently has an after-tax cost

Question

6.

Sister Pools sells outdoor swimming pools and currently has an after-tax cost of capital of 11.6 percent. The sales manager of Sister Pools estimates that a new line of water features and fountains would produce 20 percent of the firm's future total sales. The initial cash outlay for this project would be $85,000. The expected net cash inflows are $16,000 a year for 7 years. What is the net present value of the Sister Pools project?

7.

What is the net present value of a project with the following cash flows if the required rate of return (cost of capital) is 12.0 percent?

8.

Ryder Industries is considering a project that will produce cash inflows of $92,000 a year for five years. What is the internal rate of return if the initial cost of the project is $275,000?

9.

Charles Henri is considering investing $36,000 in a project that is expected to provide him with cash inflows of $12,000 in each of the first two years and $18,000 for the following year. At a discount rate of zero percent this investment has a net present value of _____, but at the relevant discount rate of 17 percent the project's net present value is _____.

10.

Quality Tools, Inc. needs to purchase a new machine costing $2,080,000. Management is estimating the machine will generate cash inflows of $376,000 for seven years. If management requires a minimum 8.0 percent rate of return, should the firm purchase this particular machine? (Find the Internal Rate of Return) Why or why not?

6.

Sister Pools sells outdoor swimming pools and currently has an after-tax cost of capital of 11.6 percent. The sales manager of Sister Pools estimates that a new line of water features and fountains would produce 20 percent of the firm's future total sales. The initial cash outlay for this project would be $85,000. The expected net cash inflows are $16,000 a year for 7 years. What is the net present value of the Sister Pools project?

Explanation / Answer

Question no:6 the net present value of the Sister Pools project cost of capital =11.60% Initial Investment =$85000 Expected cash inflows per year =$16000 (for 7 years) Present Value of Cash inflows = cash inflow per year *Annuity factor at 11.60% for 7 years Present Value of Cash inflows = $16000*4.62223 =$73955.68 NPV of the project Amount in $ present value of Inflows 73955.68 Less: Initial cash outflow 85000 Net Present value -11044.3 Question no:7 required rate of return =12% Annuity factor at 12% for 7 years =4.56376 Present Value of Cash inflows = cash inflow per year *Annuity factor at 12% for 7 years Present Value of Cash inflows = $16000*4.56376 =$73020.10 NPV of the project Amount in $ present value of Inflows 73020.1 Less: Initial cash outflow 85000 Net Present value -11979.9

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