. A company is considering a project that will require a cost outlay of $15 000 per year for four years. At the end of the project the salvage value will be $10.000. The project will yield returns of $60 000 in Year 4 and $20 000 in Year 5. There are no returns after Year 5. Alternative investments are available that will yield a return of 16% Should the company undertake the project?

. A company is considering a project that will require a cost outlay of $15 000 per year for four years. At the end of the project the salvage value will be $10.000. The project will yield returns of $60 000 in Year 4 and $20 000 in Year 5. There are no returns after Year 5. Alternative investments are available that will yield a return of 16% Should the company undertake the project?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Brewster's is considering a project with a life of 5 years, an initial cost of $150,000, and a discount rate of 10 percent. The firm expects to sell 2,400 units a year at a cash flow per unit of $25. The firm will have the option to abandon this project after three years at which time it could sell the project for $40,000. At what level of sales should the firm be willing to abandon this project at the end of the third year?Answer in Excel Please
Pharoah Inc. is contemplating a capital project with a cost of $149000. The project will generate net cash flows of $44000 for year 1, $60000 for year 2 and $59000 for year 3. The asset has a salvage value of $10000 and straight-line depreciation will be used. The company's required rate of return is 10%. Year 1 2 3 0 0 0 0 Present Value of 1 at 10% 0.909 0.826 0.751 PV of an Annuity of 1 at 10% 0.909 1.736 2.487 acceptable because it has a positive NPV. unacceptable because it has a zero NPV. unacceptable because it earns a rate less than 10%. acceptable because it has a return of greater than 10%. SUPPO
As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The purchase price of the equipment, including installation, is $65,000, and the equipment will be fully depreciated at t = 0. Annual sales would be 4,000 units at a price of $50 per cartridge, and the project’s life would be 3 years. Current assets would increase by $5,000 and payables by $3,000. At the end of 3 years, the equipment could be sold for $10,000. Variable costs would be 70% of sales revenues, fixed costs would be $30,000 per year, the marginal tax rate is 25%, and the corporate WACC is 11%. The firm’s project CVs generally range from 1.0 to 1.5. A 3% risk premium is added to the WACC if the initial CV exceeds 1.5, and the WACC is reduced by 0.5% if the CV is 0.75 or less. Then a revised NPV is calculated. What are the revised values for the NPV? NPV Best Case Scenario = $ . NPV Base Case Scenario = $ . NPV Worst-case Scenario = -$ . Expected NPV = $
ABC Corp is considering a new project: the project requires an initial cost of $375,000, and will not produce any cash flows for the first two years. Starting in year 3, the project will generate cash inflows of $528,000 a year for three years. This project has higher risk compared to other projects the firm has, so it is assigned with a discount rate of 18%. What is the project's net present value? $773,016.1 $218,693.6 $449,487.3 $824,487.3 Oa b. C₂ d.
ThreeRivers Corp. is considering the purchase of a new piece of equipment with a life of 12 years. The internal rate of return of the project is 20%. ThreeRivers has a required rate of return (hurdle rate) of 17%. The project would have: Multiple Choice a net present value greater than zero. a payback period more than 12 years. a net present value of zero. an accounting rate of return greater than 17%.
Sheridan Company is considering a long-term investment project called ZIP. ZIP will require an investment of $123,200. It will have a useful life of 4 years and no salvage value. Annual revenues would increase by $79.240, and annual expenses (excluding depreciation) would increase by $39,200. Sheridan uses the straight-line method to compute depreciation expense. The company's required rate of return is 12%. Compute the annual rate of return. Annual rate of return Determine whether the project is acceptable? the project. eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer
Pharoah Company is considering a long-term investment project called ZIP. ZIP will require an investment of $123,338. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $82,500, and annual cash outflows would increase by $41,250. The company's required rate of return is 12%. Click here to view the factor table. Calculate the internal rate of return on this project. (Round answers to O decimal places, e.g. 15%.) Internal rate of return on this project is between Determine whether this project should be accepted? The project be accepted. % and %.
Brown Company is considering purchasing a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $50,000. The machine would provide annual cost savings of $75,000. The company requires a rate of return of 11% on all investment projects. What is the net present value of the proposed project? (Select the answer that is closest to your calculations.) Present value tables are provided below. Present Value of $1 Table (Exhibit 11B-1) (Partial table) Periods 4% 5% 6% 7% 8% 9% 10% 11 12% 13% 14% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 1 2. 4 5. 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.760 0.711 0.665 0.623…
The management of XY Company is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will increase annual cash inflow by $2,200. The useful life of the equipment is 6 years. After 6 years it will have no salvage value. The management wants a 20% return on all investments. Compute net present value (NPV) of this investment project.
Halloween, Incorporated, is considering a new product launch. The firm expects to have an annual operating cash flow of $9.2 million for the next 8 years. The discount rate for this project is 13 percent for new product launches. The initial investment is $39.2 million. Assume that the project has no salvage value at the end of its economic life. a. What is the NPV of the new product? (Do not round intermediate calculations and After the first year, the project can be dismantled and sold for $26.2 million. If the estimates of remaining cash flows are revised based on the first year’s experience, at what level of expected cash flows does it make sense to abandon the project?
A company is developing a special vehicle for Arctic exploration. The development requires an initial investment of $80,000 and investments of $50,000 and $40,000 for the next two years, respectively. Net returns beginning in Year 4 are expected to be $41,000 per year for 10 years. If the company requires a rate of return of 13%, compute the net present value of the project and determine whether the company should undertake the project. The net present value of the project is $ (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and no salvage value. The machine will lower operating costs by $18,000 per year. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the company's required rate of return is 17% and the net present value of the investment before considering the qualitative benefits is $(29,404), the minimum dollar value per year that must be provided by the machine's qualitative benefits to justify the $100,000 investment is closest to: Multiple Choice O O о O $7,787. $8,247. $7,497. $8,067.

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