10. A small business with an initial investment of ETB. 12,000 earns a profit of ETB 10,000 during the first year of its operation and the profit increases by ETB. 1,000 from its second year of operation up to its 1Oth year of operation. At the end of the life of the business, the salvage value is zero. Find the present worth of the business by assuming an interest rate of 18%, compounded annually.

10. A small business with an initial investment of ETB. 12,000 earns a profit of ETB 10,000 during the first year of its operation and the profit increases by ETB. 1,000 from its second year of operation up to its 1Oth year of operation. At the end of the life of the business, the salvage value is zero. Find the present worth of the business by assuming an interest rate of 18%, compounded annually.

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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4. Calculate the present worth of a machine which costs $ 95000 initially and will have a $ 18000 salvage value after 11 years . The operating cost is $ 9000 at the end of yearl and amounts increasing by 10 % each year . Use an interest rate of 16 % per year compounded quarterly .
The company buys an asset that costs $11,200 and returns net cash flow of $160 per month for 3 years, followed by $270 per month for 3 additional years. The company financing rate is 10.9% compounded monthly. Find the asset's annualized internal rate of return and net present value. O The IRR and NPV equal 16.69% and $1,860.86 O The IRR and NPV equal 15.69% and $1,960.86 O The IRR and NPV equal 17.69% and $2,060.86 O The IRR and NPV equal 19.69% and $2,160.86
5. Calculate the present worth of a machine which costs $74000 initially and will have a $14000 salvage value after 11 years. The operating cost is $10000 at the end of yearl and amounts increasing by 10% each year. Use an interest rate of 14% per year compounded continuously.
5. The original investment in a project was $66,350. The project has a life of ten years and the company requires a 10% rate of return on all investments. The annual net income was $16,592.1. $ 7,930 was the depreciation expense. What is the project's profitability index rounded to two decimal places?
A company expects the cost of equipment maintenance to be $5,000 in year one, $5,500 in year two, and amounts increasing by $500 per year through year 10. At an interest rate of 10% per year, the present worth of the maintenance cost is nearest to A.$51,790 B.$42,170 C.$46,660 D.$38,220
You are a small business owner and have purchased a $10,000 asset that you can depreciate over four years ($2,500/per year). Under accelerated depreciation, you would be allowed to depreciate 75% of the asset's value immediately in the first year and the remaining 25% in the second year. Assume that the discount rate is 10%. Further suppose that your business usually makes $56,000 of annual profit, on which it pays a 21% tax every year. Should you claim accelerated depreciation, or should you depreciate the asset over the 4 years at $2,500 per year?
A firm has invested $50,000 in equipment with a 5-year useful life. The machinery will have a salvage value of $5,000. The annual benefits from the machinery are $13,000 for the first year and increase by $2,000 per year. Assume a combined 30% income tax rate, and the firm uses the SOYD depreciation. Calculate the before-tax IRR. Calculate the after-tax IRR.
15. A company purchases a piece of equipment for $15,000. After nine years, the salvage value is $900. The annual insurance cost is 5% of the purchase price, the electricity cost is $600/yr, and the maintenance and replacement parts cost is $120/yr. The effective annual interest rate is 10%. Neglecting taxes, what is most nearly the present worth of the equipment if it is expected to save the company $4500 per year? (A) $2300 (B) $2800 (C) $3200 (D) $3500
10. A small business with an initial investment of ETB. 12,000 earns a profit of ETB 10,000 during the first year of its operation and the profit increases by ETB. 1,000 from its second year of operation up to its 10th year of operation. At the end of the life of the business, the salvage value is zero. Find the present worth of the business by assuming an interest rate of 18%, compounded annually.
A business invests $5000 and initially plans to achieve annual revenue of $1100/yr with $200/yr expenses (starting at the end of ar 1) for ten years. No market value if used for ten years. 1. What is the IRR if it is used for ten years with no market value? Is it a good investment if used this way? Why?
The data required for a new investment are calculated as follows: Cost of the investment: 10.000.000 $ Annual growth rate expected from cash flows is 10% Cost of capital (discount rate): 25% Economic life of the investment: 5 years Tax rate: 40% Normal depreciation method is applied. If the firm is expected of investment every year for 5 years, the depreciation and pre-tax profit (AVOK) will be 7,000,000 TL, how much will the net current value of investment will be
29. X Corporation is considering buying a $25,000 machine. Its estimated useful life is 5 years, with no salvage value. X anticipates annual net income after taxes of $1,500 from the new machine. What is the rate of return on average investment, assuming that X uses straight-line depreciation and that the net income is earned uniformly throughout each year? A. 6.0% B. 8.0% C. 12.0% D. 26.0% E. 52.0%

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