12. Chrustuba Inc. is evaluating a new project that would cost $8.6 million at t = 0. There is a 50% chance that the projectwould be highly successful and generate annual after-tax cash flows of $5.4 million during Years 1, 2, and 3. However,there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If theproject is highly successful, it would open the door for another investment of $12 million at the end of Year 2, and thisnew investment could be sold for $24 million at the end of Year 3. Assuming a WACC of 9.0%, what is the project'sexpected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations.a. $3,716b. $2,787c. $4,460d. $3,159e. $2,973 10. Games Unlimited Inc. is considering a new game that would require an investment of $22.0 million. If the new gameis well received, then the project would produce cash flows of $9.5 million a year for 3 years. However, if the market doesnot like the new game, then the cash flows would be only $5.8 million per year. There is a 50% probability of both goodand bad market conditions. The firm could delay the project for a year while it conducts a test to determine if demandwould be strong or weak. The project's cost and expected annual cash flows would be the same whether the project isdelayed or not. If the WACC is 9.0%, what is the value (in thousands) of the investment timing option? Do not roundintermediate calculations.a. $751b. $704c. $939d. $845e. $1,033

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12. Chrustuba Inc. is evaluating a new project that would cost $8.6 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.4 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of $12 million at the end of Year 2, and this new investment could be sold for $24 million at the end of Year 3. Assuming a WACC of 9.0%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. a. $3,716 b. $2,787 c. $4,460 d. $3,159 e. $2,973

12. Chrustuba Inc. is evaluating a new project that would cost $8.6 million at t = 0. There is a 50% chance that the project would be highly successful and generate annual after-tax cash flows of $5.4 million during Years 1, 2, and 3. However, there is a 50% chance that it would be less successful and would generate only $1 million for each of the 3 years. If the project is highly successful, it would open the door for another investment of $12 million at the end of Year 2, and this new investment could be sold for $24 million at the end of Year 3. Assuming a WACC of 9.0%, what is the project's expected NPV (in thousands) after taking into account this growth option? Do not round intermediate calculations. a. $3,716 b. $2,787 c. $4,460 d. $3,159 e. $2,973

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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A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $3 million. What is the free cash flow on the project, per year, if the firm uses a 40 percent marginal tax rate? O$2.8 million O $2.4 million 0 $4.6 million $3.4 million
A project’s initial cost is 13 million. The company expects a net cashflow of 10 million in year one, but the net cashflow is expected to decrease 1 million each year for the next years. If the company’s MARR is 12%, using NPW/NFW analysis is the project profitable in the first 5 years?
A project that costs $1000 today is expected to have cash flows of $200/year for 10 years. Under these projections, this is a positive NPV project: if your cost of capital is 10%/year, investing $1000 today and earning $200 per year for 10 years yields an NPV of $228.91 (you can verify this yourself, or take my word for it). However, those annual cash flows of $200 are based on the following expectations: A 50% probability that business will be good and the project will earn $300/year, and a 50% probability that business will be bad and the project will earn $100/year. (Note that the expected annual cash flows will be: [0.5 * $300] + [0.5 * $100] = $200/year, as stated above.) Unfortunately, you will not know which state of the world you will be in until you spend the $1000 and start the business; in year 1, after the business opens, you will find out. Obviously, if you open for business and business is good, you will want to stay open for the entire 10 years; if your cost of capital…
so.4
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24. You are evaluating a project that will cost $534,000, but is expected to produce cash flows of $128,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11% and your company's preferred payback period is three years or less. a. What is the payback period of this project? b. Should you take the project if you want to increase the value of the company? a. What is the payback period of this project? The payback period is ____years. b. If you want to increase the value of the company you (will/will not) take the project since the NPV is (negative/positive) **round to two decimal places**
Your answer is partially correct. Sunland Company is considering a long-term investment project called ZIP. ZIP will require an investment of $123,600. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $82,400, and annual cash outflows would increase by $41,200. 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 whole number (e.g., 15%).) Internal rate of return on this project is between 3 % and 1539 % Determine whether this project should be accepted? The project should be accepted.
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