1 Abusiness is considering the option of buying a piece of equipment that has a life of 5 years. The original cost of the equipment is RM50,000 and the interest rate is 10%. It is expected that the net cash flow is RM15,000 annually and the salvage value is RMS,000. Required a. What is the NPV? b. Recommend whether the investment is feasible.

1 Abusiness is considering the option of buying a piece of equipment that has a life of 5 years. The original cost of the equipment is RM50,000 and the interest rate is 10%. It is expected that the net cash flow is RM15,000 annually and the salvage value is RMS,000. Required a. What is the NPV? b. Recommend whether the investment is feasible.

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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Project S requires an initial outlay at t = 0 of $16,000, and its expected cash flows would be $5,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $30,500, and its expected cash flows would be $9,450 per year for 5 years. If both projects have a WACC of 16%, which project would you recommend? Select the correct answer. O a. Project S, because the NPVS > NPVL. O b. Both Projects S and L, because both projects have NPV's > 0. c. Both Projects S and L, because both projects have IRR's > 0. O d. Project L, because the NPVL > NPVS. O e. Neither Project S nor L, because each project's NPV < 0.
Vijay
YOU ARE A FINANCIAL ANALYST FOR A COMPANY THAT IS CONSIDERING A NEW PROJECT. IF THE PROJECT IS ACCEPTED, IT WILL USE A FRACTION OF A STORAGE FACILITY THAT THE COMPANY ALREADY OWNS BUT CURRENTLY DOES NOT USE. THE PROJECT IS EXPECTED TO LAST 10 YEARS, AND THE ANNUAL DISCOUNT RATE IS 10% (COMPOUNDED ANNUALLY). YOU RESEARCH THE POSSIBILITIES, AND FIND THAT THE ENTIRE STORAGE FACILITY CAN BE SOLD FOR €100,000 AND A SMALLER (BUT BIG ENOUGH) FACILITY CAN BE ACQUIRED FOR €40,000. THE BOOK VALUE OF THE EXISTING FACILITY IS €60,000, AND BOTH THE EXISITING AND THE NEW FACILITIES (IF IT IS ACQUIRED) WOULD BE DEPRECIATED STRAIGHT LINE OVER 10 YEARS (DOWN TO A ZERO BOOK VALUE). THE CORPORATE TAX RATE IS 40%. DISCUSS WHAT IS THE OPPORTUNITY COST OF USING THE EXISTING STORAGE CAPACITY?
A) Consider the following two mutually exclusive projects: Cash flow (A) -RM300,000 20,000 50,000 50,000 390,000 i) ii) Year 0 1 2 3 4 Cash flow (B) -RM40,000 19,000 12,000 18,000 10,500 If you apply the payback criterion, which investment will you choose if you set the maximum payback period of 3 years? If you apply the internal rate of return (IRR) criterion, which investment will you choose, if you require a 15% return?
Please answer this question in a comprehensive and detailed manner with step by step solution. Reject any form of excel's sheet answer format. Just do it manually.
4. You have to select only one of the following projects (ie. They are mutually exclusive.) Project #1 is 4 years long and has an NPV of $140,000. Project #2 is 6 years long and has an NPV of $180,000. The required rate of return is 10%. Which project should you take using the EAA approach?
1. A project requires an initial capital cost of (40 million ID). The investor expects the project will generate annual returns of (12 million ID), with expenditures about (4 million ID) annually. If you know that the economic life is (12) years, and the salvage value after the end of the economic life is (4 million ID). Considering that the less acceptable interest rate for the investor is (10%): A. Determining the economic feasibility for investing using the present worth method? B. What is the equivalent annual worth of this investment? C. Find the internal rate of return?
a. What is the net present value (at the discount rate of 10%) of this project?b. Perot’s engineers have determined that spending $10 million more on development will allow them to add even more advanced features. Having a more advanced chip will allow them to price the chip $50 higher in both years ($870 for year 1 and $700 for year 2). What is the NPV of the project if this option is implemented?c. If sales are only 200,000 the first year and 100,000 the second year, what would the NPV of the project be? Assume the development costs and sales price are as originally estimated. Development cost - $1,250,000Estimated development time - 9 monthsPilot testing - $200,000Ramp-up cost - $400,000Marketing and support cost - $150,000/yrSales & Production volume - $60,000/yrUnit production cost - $100Unit price - $205Interest rate - 8%
a. Determine the expected internal rate of return of this project for seven years, using the present value of an annuity of $1 table above. If required, round youP Pinal answer to the nearest whole percent. b. What are some uncertainties that could reduce the internal rate of return of this project?
You are considering an investment with the following cash flows. Your required return is 8%, you require a payback of 3 years and a discounted payback of 4 years. If your objective is to maximize your wealth, should you take this investment? Year. Cash Flow -50,000 20,000 20,000 3 20,000 4 20,000 -50,000 Select one: O a. No, because the project cash flows are not conventional. O b. Yes, because both the payback and the discounted payback are less than 2 years. O c. No, because the NPV is negative. O d. Yes, because the payback is 2.5 years. O e. Yes, because the discounted payback is less than 4 years.
Subject: acounting
Consider the 6 divisible investment alternatives shown below. The planning horizon is 8 years. The MARR is 15%. $60,000 is available for investment. Solve, a. What proportion of each investment is to be included in the optimum investment portfolio? b. Solve part a when full or partial investment cannot be made in more than 3 of the investments. c. Solve part a when investments P and R are mutually exclusive.

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