1. Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will beconstant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should risewith inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be nosalvage value. No change in net operating working capital would be required. This is just one of many projects for thefirm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expectedNPV? Do not round the intermediate calculations and round the final answer to the nearest whole number.WACC10.0%Net investment cost (depreciable basis)Units sold$200,00040,000$25.00Average price per unit, Year 1Fixed op. cost excl. depr. (constant)Variable op. cost/unit, Year 1Annual depreciation rateExpected inflation rate per yearTax rate$150,000$20.2033.333%5.00%40.0%a. -$48,202b. -$44,185c. -$51,645d. -$68,860e. -$57,383

Project's expected NPV can be calculated as follows:

1. Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise vith inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for the irm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number.

1. Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise vith inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for the irm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number.

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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Comparing all methods. Risky Business is looking at a project with the following estimated cash flow:. Risky Business wants to know the payback period, NPV, IRR, MIRR, and Pl of this project. The appropriate discount rate for the project is 10%. If the cutoff period is 6 years for major projects, determine whether the management at Risky Business will accept or reject the project under the five different decision models. What is the payback period for the new project at Risky Business? years (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Initial investment at start of project: $11,300,000 Cash flow at end of year one: $2,034,000 Cash flow at end of years two through six: $2,260,000 each year Cash flow at end of years seven through nine: $2,237,400 each year Cash flow at end of year ten: $1,721,077 HERY BU De DULU LUDIV Print (...) Diana - X Clear all Check answer
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Basic NPV methods tell us that the value of a project today is NPV0. Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1. Why then do we see some firms choosing to defer taking on a project?
so.4
Garden-Grow Products is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.) Project cost of capital (r) Net investment in fixed assets (basis) Required new working capital Straight-line deprec. rate Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate a. $31,573 b. $30,069 c. $36,550 d. $34,809 e. $33,152 10.0% $75,000 $15,000 33.333% $75,000 $25,000 25.0%
39. Deyland Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. WACC = 9%. Year 0 a. $24.71 b. $27.46 c. $30.51 d. $33.90 e. $37.29 1 2 3 4 CF, -$1,100 $375 $375 $375 $375 CF₂ $2,200 $725 $725 $725 $725
Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. WACC: 9.25% CFS CFL 1 2 3 4 -$1,200 $405 $405 $405 $405 -$2,400 $780 $780 $780 $780 0 a. $0.00 b. $210.59 c. $120.02 d. $8.26 e. $7.56
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($34 million) Below average 0.20 (16 million) Average 0.50 12 million Above average 0.20 16 million Boom 0.05 28 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. E(NPV): million σNPV: million CV:
"Consider a $1310 investment that will produce perpetual cash flows. If the demand is high, the expected cash flows will be $161 per year. Otherwise, the expected cash flows will be $46 per year. The initial probabilities for high vs. low demand are 80%/20%, but after the first cash flow is realized, the firm will know with certainty whether the demand is high or low. At that time, the project can be abandoned with a terminal cash flow of $1259. The cost of capital is 5%. What is the NPV including the option to abandon?" A) "$1,649 " B) "$1,284" C) "$1,515 " D) "$1,426" E) "$1,620"
Trovato Corporation is considering a project that would require an investment of $62,000. No other cash outflows would be involved. The present value of the cash inflows would be $77,500. The profitability index of the project is closest to (Ignore income taxes.): Multiple Choice 0.75 O O 0.20 0.25 1.25
You are analyzing a project with an initial cost of 130,000 pounds. The project is expected to return 20,000 pound the first year, 50,000 pound the second year, and 90,000 pound the third year. there is no salvage value. the current spot rate is 0.6211 pound. The nominal risk-free rate of return is 5.5% in the UK and 6% in the US. The return relevant to the project is 14% in the US. Assume that uncovered interest rate parity exists. What is the NPV of this project in US dollars using the approximate formula?

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