Two investments that Lara Fredericks is considering are mutually exclusive. The same 6-year time frame is shared by both investments. Lara anticipates receiving equal and subsequent year-end payouts of $3,000 after the initial investment, which costs$10,000. The second investment calls for an initial commitment of $12,000 and offers subsequent payouts of$3,800 in equal amounts. For the first investment, the needed return is currently 8.5%, and for the second, it is 10.5%. What is the net present value of the second investment?

Holliday Manufacturing is thinking about replacing a current equipment. The installation of the new machine will cost $150,000 and will cost$1.2 million. Currently, the equipment may be purchased for $185,000 before taxes. It is two years old,$800,000 new, has a $384,000 book value, and has five more years of usable life. It has the final 4 years of depreciation left because it was being depreciated under MACRS with a 5-year recovery period. The machine's market value will be zero at the end of year five if it is kept for an additional five years. The new machine should lower operating expenses by$350,000 annually throughout its 5-year lifespan. The new equipment will be written off utilising a 5-year recovery period and MACRS depreciation. At the end of five years, the new machine can be sold for $200,000 after deducting removal and cleanup expenses. If the new equipment is purchased, an additional investment of$25,000 in net working capital will be required to support operations. Assume that the company has enough operational revenues to cover any losses incurred from the sale of the current equipment. The company's cost of capital is 9%, and its tax rate is 40%. What is the highest cost of capital that the firm could have and still accept the proposal? Explain.

Holliday Manufacturing is thinking about replacing a current equipment. The installation of the new machine will cost $150,000 and will cost$1.2 million. Currently, the equipment may be purchased for $185,000 before taxes. It is two years old,$800,000 new, has a $384,000 book value, and has five more years of usable life. It has the final 4 years of depreciation left because it was being depreciated under MACRS with a 5-year recovery period. The machine's market value will be zero at the end of year five if it is kept for an additional five years. The new machine should lower operating expenses by$350,000 annually throughout its 5-year lifespan. The new equipment will be written off utilising a 5-year recovery period and MACRS depreciation. At the end of five years, the new machine can be sold for $200,000 after deducting removal and cleanup expenses. If the new equipment is purchased, an additional investment of$25,000 in net working capital will be required to support operations. Assume that the company has enough operational revenues to cover any losses incurred from the sale of the current equipment. The company's cost of capital is 9%, and its tax rate is 40%. Using this, make a recommendation to accept or reject the replacement proposal, and justify your answer.

On a proposed capital expenditure, Ogden Corporation has gathered the following data: (1) The anticipated cash inflows have a mean of $36,000 and a standard deviation of$9,000, and they are regularly distributed. (2) The anticipated cash outflows have a mean of $30,000 and a standard deviation of$6,000 and are regularly distributed. (3) The company's cost of capital is 11%. (4) Over the course of the project's ten-year lifespan, it is not anticipated that the probability distributions of cash inflows and outflows will change. Describe the benefits of evaluating the proposed project using a simulation.

Murdock Paints is in the process of assessing two upgrades to its processing power that are mutually exclusive. The financial analysts at the company have created realistic, most likely, and optimistic projections of the yearly cash inflows related to each project. The table below displays these projections.

$$\begin{array}{ccr} & \text { Project A } & \text { Project B } \\ \hline \text { Initial investment }\left(C F_0\right) & \$ 8,000 & \$ 8,000 \\ \hline \text { Outcome } & \text { Annual cash inflows }(C F) \\ \hline \text { Pessimistic } & \$ 200 & \$ 900 \\ \text { Most likely } & 1,000 & 1,000 \\ \text { Optimistic } & 1,800 & 1,100 \end{array}$$

Assume that both projects will last 20 years and that the firm's cost of capital is 10%. Create a table for each project's NPVs that is comparable to this one. For each project, mention the range of NPVs.

James Secretarial Services is debating buying one of the two brand-new laptops P or Q. Both demand an initial commitment of $3,000 and are expected to yield benefits over a ten-year period. The company utilises a capital cost of 10%. The following table shows management's projections for annual cash inflows for the most likely, most pessimistic, and optimistic outcomes.

$$\begin{array}{ccc} & \text { Computer } \mathrm{P} & \text { Computer } \mathrm{Q} \\ \hline \text { Initial investment }\left(C F_0\right) & \$ 3,000 & \$ 3,000 \\ \hline \text { Outcome } & \text { Annual cash inflows }(C F) \\ \hline \text { Pessimistic } & \$ 500 & \$ 400 \\ \text { Most likely } & 750 & 750 \\ \text { Optimistic } & 1,000 & 1,200 \end{array}$$

Make a table like this for the NPVs related to each result for both computers.

Holliday Manufacturing is thinking about replacing a current equipment. The installation of the new machine will cost $150,000 and will cost$1.2 million. Currently, the equipment may be purchased for $185,000 before taxes. It is two years old,$800,000 new, has a $384,000 book value, and has five more years of usable life. It has the final 4 years of depreciation left because it was being depreciated under MACRS with a 5-year recovery period. The machine's market value will be zero at the end of year five if it is kept for an additional five years. The new machine should lower operating expenses by$350,000 annually throughout its 5-year lifespan. The new equipment will be written off utilising a 5-year recovery period and MACRS depreciation. At the end of five years, the new machine can be sold for $200,000 after deducting removal and cleanup expenses. If the new equipment is purchased, an additional investment of$25,000 in net working capital will be required to support operations. Assume that the company has enough operational revenues to cover any losses incurred from the sale of the current equipment. The company's cost of capital is 9%, and its tax rate is 40%. Using this, determine the internal rate of return (IRR) of the proposal.

Describe in detail how transfer pricing affects the capital budgeting choices made by multinational corporations.

The following projects are being thought about by Caradine Corp., a media services company with $3,200,000 in net earnings in the most recent year.

$$\begin{array}{ccl} \text { Project } & \text { Initial investment } & \text { Details } \\ \hline \text { A } & \$ 35,000 & \text { Replace existing office furnishings. } \\ \text { B } & 500,000 & \begin{array}{l} \text { Purchase digital film-editing equipment for use with several } \\ \text { existing accounts. } \end{array} \\ \text { C } & 450,000 & \begin{array}{l} \text { Develop proposal to bid for a } \$ 2,000,000 \text { per year } 10 \text {-year } \\ \text { contract with the U.S. Navy, not now an account. } \end{array} \\ \text { D } & 685,000 & \begin{array}{l} \text { Purchase the exclusive rights to market a quality educational } \\ \text { television program in syndication to local markets in the } \\ \text { European Union, a part of the firm's existing business } \\ \text { activities. } \end{array} \end{array}$$

The media services industry has a cyclical nature and is quite cutthroat. The board of directors has requested you to accomplish as chief financial officer to comment on why you chose each ranking.

Jan and Deana have long had a desire of purchasing a boat, and they've determined that calculating its cash flows will aid them in making their choice. They anticipate having a $24,000 annual disposable income. They have the following cash flow projections for the boat purchase:

$$\begin{array}{lc} \text { Negotiated price of the new boat } & \$ 70,000 \\ \text { Sales tax rate (applicable to purchase price) } & 6.5 \% \\ \text { Boat trade-in } & 0 \\ \text { Estimated value of new boat in 4 years } & \$ 40,000 \\ \text { Estimated monthly repair and maintenance } & \$ 800 \\ \text { Estimated monthly docking fee } & \$ 500 \end{array}$$

Using these cash flow estimates, calculate Operating cash flow

Jan and Deana have long had a desire of purchasing a boat, and they've determined that calculating its cash flows will aid them in making their choice. They anticipate having a $24,000 annual disposable income. They have the following cash flow projections for the boat purchase:

$$\begin{array}{lc} \text { Negotiated price of the new boat } & \$ 70,000 \\ \text { Sales tax rate (applicable to purchase price) } & 6.5 \% \\ \text { Boat trade-in } & 0 \\ \text { Estimated value of new boat in 4 years } & \$ 40,000 \\ \text { Estimated monthly repair and maintenance } & \$ 800 \\ \text { Estimated monthly docking fee } & \$ 500 \end{array}$$

Based on their disposable annual income, what advice would you give Jan and Deana regarding the proposed boat purchase?

Murdock Paints is in the process of assessing two upgrades to its processing power that are mutually exclusive. The financial analysts at the company have created realistic, most likely, and optimistic projections of the yearly cash inflows related to each project. The table below displays these projections.

$$\begin{array}{ccr} & \text { Project A } & \text { Project B } \\ \hline \text { Initial investment }\left(C F_0\right) & \$ 8,000 & \$ 8,000 \\ \hline \text { Outcome } & \text { Annual cash inflows }(C F) \\ \hline \text { Pessimistic } & \$ 200 & \$ 900 \\ \text { Most likely } & 1,000 & 1,000 \\ \text { Optimistic } & 1,800 & 1,100 \end{array}$$

Which project would you suggest? Why?

Murdock Paints is in the process of assessing two upgrades to its processing power that are mutually exclusive. The financial analysts at the company have created realistic, most likely, and optimistic projections of the yearly cash inflows related to each project. The table below displays these projections.

$$\begin{array}{ccr} & \text { Project A } & \text { Project B } \\ \hline \text { Initial investment }\left(C F_0\right) & \$ 8,000 & \$ 8,000 \\ \hline \text { Outcome } & \text { Annual cash inflows }(C F) \\ \hline \text { Pessimistic } & \$ 200 & \$ 900 \\ \text { Most likely } & 1,000 & 1,000 \\ \text { Optimistic } & 1,800 & 1,100 \end{array}$$

Do parts a and b provide consistent views of the two projects? Explain.

Two investments that Centennial Catering, Inc. is thinking about are mutually exclusive. The corporation wants to conduct its study using a risk-adjusted discount rate (RADR) of the CAPM variety. The managers of Centennial note that the present risk-free rate of return is 7% while estimating that the proper market rate of return should be 12%. The following table displays the cash flows related to the two projects.

$$\begin{array}{ccr} & \text { Project X } & \text { Project Y } \\ \hline \text { Initial investment }\left(C F_0\right) & \$ 70,000 & \$ 78,000 \\ \hline \text { Year }(t) & {\text { Cash inflows }\left(C F_t\right)} \\ \hline & \$ 30,000 & \$ 22,000 \\ 2 & 30,000 & 32,000 \\ 3 & 30,000 & 38,000 \\ 4 & 30,000 & 46,000 \end{array}$$

Talk about your findings and suggest the ideal project.