11. (2 marks) Bill plans to open a do-it-yourself dog-bathing centre in a storefront. The bathingequipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually forseven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.Assume the required return is 17%. What is the project's IRR? Should it be accepted?A. 12.2%; yesB. 12.2%; noC. 16.3%; yesD. 16.3%; noE. 17%; indifferent

IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…

Answered: 11. (2 marks) Bill plans to open a…

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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123 Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $1,550,000 and will last 10 years. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $180,000. She estimates that the return from owning her own shop will be $55,000 per year. She estimates that the shop will have a useful life of 6 years. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a…
You recently inherited $10,000 that you are planning to use for a down-payment on a house in 3 years. You considering using those funds in the meantime to purchase new solar panels for your current home, with the hope that you can earn the $10,000 back by the time 3 years comes around for use as the down-payment on the new house. The manufacturer promises the panels will save $4000 per year in gas and electric costs. If you can expect i = 12%, should this equipment be purchased (ie. will you have received your money back in 3 years)?
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Q4. Please answer the problem Subject: engineering economics Pls answer as soon as possible
1. You are planning on leasing a drying oven for your production line. The oven lease terms involve an initial payment of $1000 when the oven is delivered, an annual payment of $2000 for seven years, and a final recovery payment of $1000 when the leasing company takes the oven back at the end of the lease. Your corporate cost of money is 4% and the leasing company is responsible for all maintenance on the oven. What is the equivalent (NPV) value of this cashflow today? 1.a The oven you are leasing (from question 1), is expected to generate a cost savings of $5000 per year over the older oven you are currently using. What is the equivalent NPV value of the cashflow when these savings are included?
A real estate development company is considering the purchase of a new piece parcel of land in manhattan that will cost $34,000,000. The land will generate $6,500,000 of rent each year for the next 20 years. what is the IRR for this new investment? NOTE: enter amount to two decimal (e.g., 78.76 or 40.00) IRR= ______ %
Your parents are saving to buy a new boat, at the price of $78,000. They have saved $46,840 which is invested at 4.9 percent annual interest. How many years will it be before they purchase the boat, assuming the price of the boat remains constant? 9.67 years O 17.18 years 10.66 years O 12.81 years O 16.91 years
10. A house constructed at the cost of ₱112,500 is expected to last 30 years, at the end of which time its renewal cost will be ₱60,000 annual repairs and maintenance are ₱4,500. What is the capitalized cost of the house at an interest of 6%? Solve and show the solution.
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Ginny Trueblood is considering an investment which will cost her $120,000. The investment produces no cash flows for the first year. In the second year the cash inflow is $35,000. This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently. Ginny requires a 10 % rate of return and has a required payback period of three years. Should Ginny accept this project? Justify your response. What are the major drawbacks of the Payback method ? What other method would you recommend to use and why?
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