User Account

All Pages

Calculate the npv for both factories and for both scenarios

Assignment Help Finance Basics
Reference no: EM132022704

The ACME Umbrella Company is deciding between two different umbrella factories. Both factories will cost $500,000 to get started. However, the cash flows for each factory will depend on whether the next five years are rainier than average or sunnier than average. Factory A will have cash flows of $130,000 per year for the next five years if the weather is sunnier than average. But if it is rainier than average the cash flows will be $150,000 per year for the next five years. Factory B will have cash flows of $100,000 per year for the next five years if it is sunnier than average, but if it is rainier than average it will have cash flows of $200,000 per year. ACME has a cost of capital of 9%. Based on this information, calculate the following:

  1. Calculate the NPV for both factories and for both scenarios (rainy versus sunny). What is the range of NPV for each factory based on your scenario analysis?
  2. Based on your answer to a) above, do you think ACME should use the same discount rate of 9% for each factory? Or should they use a risk-adjusted discount rate (RADR)? If so, which factory should have a higher RADR?

Reference no: EM132022704

Questions Cloud

What is the role of the media in shaping public opinion : Probation and parole encompasses a wide variety of offenders and can be as vast and diverse as the populations the law enforcement officials oversee.
Work performance data-work performance information : Describe the difference between work performance data, work performance information, and work performance reports.
Evaluate cyber-defense tools in given situations : Evaluate cyber-defense tools that are used to proactively mitigate the risk of attack by a malicious insider. Explore strategies available to organizations.
Explain the role of fusion centers in combating terrorism : Fusion centers play a central role in the battle against terrorism by providing a central point through which various criminal justice agencies can coordinates.
Calculate the npv for both factories and for both scenarios : Calculate the NPV for both factories and for both scenarios (rainy versus sunny). What is the range of NPV for each factory based on your scenario analysis?
Calculate the sharpe index for the portfolio : A portfolio has a return of 5% and a standard deviation of 10%. If the risk-free rate is 2%, calculate the Sharpe index for the portfolio.
Cost of debt with an outstanding debt issue : Determine the cost of debt with an outstanding debt issue and 18 years to maturity that is quoted at 97.00% of face value.
The importance and function of probation : This module discusses the historical origins of probation and parole and how societal values have influenced and continue to influence the role.
Create a proposal for a secure operating system project : Create a proposal for a secure operating system project within an international organization. Select appropriate team members to participate.

Reviews

Write a Review

Finance Basics Questions & Answers

  Define diversification and its necessity in risk management

howru a private card business and its subsidiary have a 14 share of the greeting card market. the card business is

  The important steps in the process

Elucidate the process you will utilize to accomplish this task, including the information you will want also the important steps in the process.

  How sensitive is ocf to an increase of one unit

straight line depreciation to zero over the 3 year life; zero salvage value; price =$34.99; variable costs=$23.16; fixed costs=$245,000; quantity sold=94,500 units; tax rate=35%. How sensitive is OCF to an increase of one unit in the quantity sold..

  Explain why the interest portion of each payment declines

Calculate the annual, end-of-year loan payment. Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments. Explain why the interest portion of each payment declines with the passage of time.

  Analyze effect of monetary policy on foreign exchange market

Write a Paper about Analyze the effects of monetary policies on foreign exchange market in turkey.

  Greek bond yields have been rising due to higher default

greek bond yields have been rising due to higher default risk on these bonds. how is this related with the maastricht

  Define suitable populations from which the following

define suitable populations from which the following samples are selecteda persons in 200 homes are called by telephone

  Distinguish between a rights offering and a warrant

Distinguish between a rights offering and a warrant

  What is the most you can pay for the land today if your

you are thinking about purchasing some vacant land. you expect to be able to sell the land ten years from now for

  What subsequently happened to the prices

Groupon (GRPN) wen public a $20 a share and closed the first day at $26.11. Zynga (ZNGA) went public at $10 a share but closed the first day at $9.50. Facebook (FB) trading below $28 within two weeks for a 26.3 percent decline from the IPO offer pric..

  What is the firm value of operations in millions

Mooradian Corporation's free cash flow during the just ended year (t=0) was $100 million, and the FCF is expected to grow at a constant rate of 5.0% in the future. If the weighted average cost of capital is 12.5%, what is the firm's value of opera..

  What would be the expected irr of investment

Suppose a certain property is expected to produce net operating cash flows annually as follows, at the end of each of the next five years: $15,000, $16,000.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd