4. Estimates indicate that a timber tract will yield an annual profit of P5,000,000 for 10 years, after which the timber will be exhausted. The land can then be sold for P600,000. If a prospective purchaser wishes to earn 12% on his investment and can deposit money in a sinking fund at 6%, determine the maximum price he should pay for the tract

4. Estimates indicate that a timber tract will yield an annual profit of P5,000,000 for 10 years, after which the timber will be exhausted. The land can then be sold for P600,000. If a prospective purchaser wishes to earn 12% on his investment and can deposit money in a sinking fund at 6%, determine the maximum price he should pay for the tract

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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Similar questions

A project has an initial investment of $45,000. This project needs an annual spending of $6,000 to generate an annual revenue of $18,000 for six years. Moreover, the project is expected to return $12,000 as a salvage value at the EOY 6. Calculate the AW using MARR of 10%
Investment Criteria. What is the NPV of a project that costs $250,000 and provides cash inflows of $50,000 annually for ten years and the discount rate is 10 percent? Should the project be accepted? Please show your work
A firm undertakes a five-year project that requires an initial capital investment of $125,000. The project is then expected to provide cash flow of $15,000 per year for the first two years, $55,000 in the third and fourth years, and $16,000 in the fifth year. The project has an end-of-life salvage value of $7,000.
You are offered to spend P500,000 on a certain project that promises to yield yearly benefit of P150,000 for a period of 20 years. If the interest rate is 8%, find if project is desirable using benefit cost analysis
Company AAAs have option to invest in Company's BBBS newly constructed Condo. The WACC is 6%. The required investment is P6,000,000.00. The project will last for four years with estimated cash flow of P1,000,000.00 per year. -Compute for Discounted Cash Flow -How much is the Net Present Value -If you are the manager of Company AAAS, will you consider investing in the project? Why?
You are evaluating purchasing the rights to a project that will generate after tax expected operating cash flows of $91k at the end of each of the next five years, plus an additional $1,000k non-operating terminal period cash flow at the end of the fifth year. You can purchase this project for $531k. If your firm's cost of capital (aka required rate of return) is 14.3%, what is the NPV of this project? Note: All dollar values are given in units of $1k = $1000. Provide your answer in units of $1000, thus, $15000 = 15k and thus you should enter 15 for your answer.
Puan Jasmin is considering a project that requires an initial investment of RM120,000 and this is a 5-year project. This project is expected to have an after-tax cash flow of RM20,000 per year for the first two years, RM40,000 per year for the next two years, and RM50,000 for the fifth year. From the information given, you are required to answer the following questions. a. What is the Payback Period for the project?
Suppose Drake Pile Co. is considering a project to invest in a racehorse over the next 12 years. They anticipate that the project will cost $130, 000 to be paid. immediately and will yield revenue of $431, 500 in one lump sum 12 years from today. Find the internal rate of return (IRR) an the project if interest is compounded semiannually. Should Drake Pile Co. accept the project if their cost of capital is 11.69%?
A project yields annual benefits of 75,000 for 10 years with 0 salvage value. It is designed to have a benefit cost ratio of 2. Determine the cost of the project if money is worth 10%
Assume that you are valuing an infinitely lived asset that pays $350 at the end of each year. What is the present value of the asset if the opportunity cost of funds is 3%?
The annual maintenance costs of a tunnel, which is considered to have an infinite life, are worth 500 TL, the interest rate is accepted to be 5% per year, and the capitalized cost is estimated to be 15000 TL.What is the initial investment cost of the tunnel.
12. An electric company is considering a proposal to supply power to a small town, Initial capital investment is P18M plus another P25M spread out evenly over a five year period. The project will last for 15years and income generated is expected to be P7.5M per year starting at the end of the fourth year. Determine the feasibility of the proposal using the ERR method with a 14% MARR and a 15% reinvestment rate. (Ans. Proposal is not feasible, 13%)

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