Financial statements analysis
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Based on the NPV result, should the firm proceed with the EcoChill project?
Briefly explain how the present value at the end of year 2 was calculated.
Case Study: Lambda
Lambda is a company engaged in the development of eco-friendly home appliances.
Its product development division has recently introduced
EcoChill, an
energy-efficient compact refrigerator targeted at environmentally conscious
urban households. Industry forecasts suggest that EcoChill will have a market
presence lasting approximately three years due to rising sustainability trends.
Market Projections To bring EcoChill to market, Lambda must invest in specialized manufacturing equipment at the start of the project. The key financial details are as follows:
Initial
Investment
: Lambda must make an investment of $1 900 000at the
start of the project.
Expected
Operating Profits
:By
the end of the first year, the company anticipates earning
$700 000in operating profit.
By
the end of the second year, operating profit is projected at
$600 000.By
the end of the third year, the expected operating profit is
$500 000.Discount
Rate
: 10%
============== Instructions ====================== Round all numerical answers to
Use + for cash inflows and – for cash outflows.
Do not add spaces before, after, or within the numbers you enter.
============= Questions ============================
What is the present value of cash flow at the beginning of the project (Year 0)?
What is the present value of cash flow at the end of Year 1?
What is the present value of cash flow at the end of Year 2?
What is the present value of cash flow at the end of Year 3?
What is the net present value of the project?
The gross profit margin ratio of Penguin Products Ltd is higher this year than it was last year. Which one of the following factors could NOT be true of this year relative to last year?
The difference between Long-Term Capital and Shareholder's Equity is
ROCE uses Long Term Capital in its formula. Long Term Capital includes
ROCE uses Operating Profit in its formula. Operating Profit includes
Solar plc is a Stock Exchange listed business. Today the business's share price rose. What effect will this have on its price/earnings ratio (P/E) and its dividend yield ratio (DY)?
P/E DY
[1] Increase Increase
[2] Increase Decrease
[3] Decrease Increase
[4] Decrease Decrease
Solar plc is a Stock Exchange listed business. Today the business's share price decreases. What effect will this have on its price/earnings ratio (P/E) and its dividend yield ratio (DY)?
P/E DY
[1] Increase Increase
[2] Increase Decrease
[3] Decrease Increase
[4] Decrease Decrease
The P/E ratio for a business (with no preference shares) is:
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