Assume the finance manager of crumbly cookie company is not

Assignment Help Accounting Basics

Reference no: EM13602222

NPV, IRR, and sensitivity analysis.Crumbly Cookie Company is considering expanding by buying a new (additional) machine that costs $62,000, has zero terminal disposal value, and has a 10-year useful life. It expects the annual increase in cash revenues from the expansion to be $28,000 per year. It expects additional annual cash costs to be $18,000 per year. Its cost of capital is 8%. Ignore taxes.

Required
1. Calculate the net present value and internal rate of return for this investment.

2. Assume the finance manager of Crumbly Cookie Company is not sure about the cash revenues and costs. The revenues could be anywhere from 10% higher to 10% lower than predicted. Assume cash costs are still $18,000 per year. What are NPV and IRR at the high and low points for revenue?

3. The finance manager thinks that costs will vary with revenues, and if the revenues are 10% higher, the costs will be 7% higher. If the revenues are 10% lower, the costs will be 10% lower. Recalculate the NPV and IRR at the high and low revenue points with this new cost information.

4. The finance manager has decided that the company should earn 2% more than the cost of capital on any project. Recalculate the original NPV in requirement 1 using the new discount rate and evaluate the investment opportunity.
5. Discuss how the changes in assumptions have affected the decision to expand.

Reference no: EM13602222

Questions Cloud

Compute and compare the accounts receivable turnover ratios : compute and compare the accounts receivable turnover ratios for coca-cola and wal-mart. indicate all numbers you used

Estimate diamonds cash receipts in may if the companys : diamond window corporations sales half of which are for cash march april may 140000 240000 160000 a. estimate

A proton is between the plates and has an acceleration of : question two large parallel plates are separated by 0.90cm and carry uniform charge densities equal in magnitude and

A presidental candidate conducts a poll of likely voters in : a presidental candidate conducts a poll of likely voters in ohio to determine their mean ageanswer the following1.

Assume the finance manager of crumbly cookie company is not : npv irr and sensitivity analysis.crumbly cookie company is considering expanding by buying a new additional machine

Venice corporation manufactures a variety of liquid lawn : venice corporation manufactures a variety of liquid lawn fertilizers including a very popular product called lush n

What must the charge sign and magnitude of a particle of : a what must the charge sign and magnitude of a particle of mass 1.42g be for it to remain stationary when placed in a

If the pressure and volume in the first state are p1 10 : a polytropic process is one in which the pressure p and volume v are related by the formula npvcwhere c is a constant.

Identify the types of samples- systematic cluster : identify the types of samples- systematic cluster convenience random stratified1. a sample was taken of every 49th

User Account

All Pages