2. A project costs $200,000 per year for 5 years, starting immediately. You reckonthat it will produce an cash inflow after operating costs of $170,000 a year for 10years, starting 3 years from now. The opportunity cost of capital is 17 percent.a. What is the present value of costs?10.17200,000 x PVIF(0.17,5) x FVIF(0.17, 1) = 200,000 × (1+0.17) × (1+0.17) = $748,647.00208b. What is the present value of the cash inflows?170,000 x PVIFA(0. 17, 10) x PVIF(0.17, ?)=(1+0.17)10170,000 xX0.17(1+0.17)c. Based on these cost and cash inflow estimates, what is your recommendation?REJECT$585, 2444. 380645IYear:01 2345Cost:Year:200,000 200,000 200,000 200,000 200,000Cash Inflows:3 4 5 6 712170,000 170,000 170,000 170,000 170,000 170,000 170,0008 9 10 11

a. What is the present value of costs?Step 1: Determine the cost per year and the duration.- Cost:…

Answered: 2. A project costs $200,000 per year…

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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Your firm is considering a project that will cost $4.59 million up front, generate cash flows of $3.52 million per year for 3 years, and then have a cleanup and shutdown cost of $6.01 million in the fourth year. a. How many IRRS does this project have? b. Calculate a modified IRR for this project assuming a discount and compounding rate of 9.9%.
A new machine will cost $400,000 and generate after-tax cash inflows of $50,000 for 12 years. Find the NPV if the firm uses a 11% opportunity cost of capital. What is the IRR? What is the payback period? (5’)
You have been asked by MPAC Ltd to analyse two projects, X and Y. Each project costs £1,000,000, and the company's cost of capital is 10 percent per annum. The expected net cash flows are as follows: Project X £600,000 £500,000 £300,000 £100,000 Project Y £200,000 £300,000 £400,000 £675,000 Year 1 3 4 Required: Calculate the following for each project: i) ii) iii) a) net present value modified internal rate of return discounted payback period b) Which project(s) should be accepted if they are independent? Explain why. c) How might a change in the cost of capital produce a conflict between the net present value and internal rate of return rankings of these two projects? Would this conflict exist if the cost of capital were changed? Why does the conflict exist? Discuss critically.
You are trying to decide between the following two projects: Cash Flows ($ thousands) Project : Today One Year Later Two Years Later A -30 15 25 B -80 40 60 You can undertake only one project. (1) What is the IRR of each project? (2) If your cost of capital is 5%, which project should you undertake?
Imagine a project with the initial investment of $35,000. The project is expected to last 10 years, with the discount rate of 8.80% and the annual (cash flow) growth rate of 1.20%. If the first year CF is $8,850, what is the NPV of this project? $27,000 $25,000 $26,000 $27,500 $26,500
BATA plc. is considering the following two projects. Only one of which maybe selected. Each project has a required rate of return of 15% for A and 10% for B with the following cash flowsYear Project A Project B0 K (200,000) K (175,000)1 68,700 50,0002 44,500 60,2503 56,500 45,2504 35,500 80,250Required:A. Calculate for each project:Payback period for each of the projects, Net present value for each of the projects and Internal rate of return for each of the projectsB. Explain which project you would recommend for acceptance for each of the three methods and overall. C. Briefly discuss the relative merits of the pay back and net present value methods of evaluation methods mentioned in (a) above
Consider the following two mutually exclusive alternatives: (a) Determine the IRR on the incremental investment in the amount of$2,000.(b) If the firm's MARR is 10%, which alternative is the better choice?
A project that costs $50 million is expected to generate $20 million per year over the next 4 years. The project's cost of capital is 6%. a) Find the payback period (PP).b) Find the net present value (NPV).c) Find the internal rate of return (IRR).d) Find the modified internal rate of return (MIRR).
Assume that it costs $1000 to start a project. If the project will give $400 profit in the first year, $500 in the second year and $300 in the third year, find the pay back period. Now assume that the interest rate is 10%, find the net present value (NPV) and the profitable index (PI) for this project.
You have an opportunity to invest $102,000 now in return for $79,700 in one year and $30,400 in two yoars If your cost of capital is 9.5%, what is the NPV of this investment? The NPV will be S (Round to the nearest cent)
(Ex) The initial investment cost for project A is 200 000 $ at probability 100%. the annual revenue is 50 000$ at probability 30% , 100 000 at probability 50% and 125 000 $ at 20% the life of project is 2 year at probability 20%, 3 year at 20% 4 year at 50% ,5 year at 10%, find expected present worth if i=9 % per year.
Consider a project with the following cash flows in dollars ($): Year Cash Flow0 -15,0001 50002 50003 50004 5000 Assume the appropriate discount rate for this project is 12%. What is the payback period for this project? (Round your answer to the tenths.)

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