A company must make a choice between two investment alternatives. Alternative 1 will return the company $20,000 at the end of two years and $65,000 at the end of eight years. Alternative 2 willreturn the company $9,000 at the end of each of the next eight years. The company normally expects to eam a rate of return of 8% on funds invested. Compute the present value of each alternative.and determine the preferred alterative according to the discounted cash flow criterion.COTEThe present value of Alternative 1 is $(Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)The present value of Alternative 2 is $(Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)The preferred alternative is

Discounting of money is the process of evaluating the present value of cash flow, which is likely to…

Answered: A company must make a choice between…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A company must make a choice between two investment alternatives. Alternative 1 will return the company $33,000 at the end of two years and $70,000 at the end of seven years. Alternative 2 will return the company $8,000 at the end of each of the next seven years. The company normally expects to earn a rate of return of 10% on funds invested. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion. The present value of Alternative 1 is S (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The present value of Alternative 2 is S (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The preferred alternative is Alternative 1. Alternative 2.
An analyst has the following projected free cash flows for an investment: Year 1: $125,050; Year 2: $137,650; Year 3 to15: $150,000 a year; Year 16 to 20: $200,000 a year. The investment is expected to have a terminal value of $500,000 at the end of Year 20. If the analyst has estimated a present value of $3 millions for the investment, what is the discount rate that she/he has used in calculations. A. % 1.37 B. % 1.78 C. % 2.12 D. % 3.25
A Company is considering an investment proposal, involving an initial cash outlay of TZS 450,000. The proposal has an expected life of 7 years and zero salvage value. At a required rate of return of 12 percent, the proposal has a profitability index of 1.182. Required: Calculate annual cash inflows.
H-1
What would be the interest rate that would allow you to convert an investment from B/.5,000 to B/.20,227.79 in 10 years? (NOTE: Do this problem ONLY with Conversion Factor and the corresponding Excel Financial Function and remember to confirm your answer with the corresponding Cash Flow Table)
Suppose that we make contributions to a fund of $125 today and $750 in twoyears for a return of $1000 in one year. First write the Net Present Value as a function of the discount factor ν. Secondly, use the NPV to calculate the yield rate of this investment (select the larger value for i. Finally, explain whether or not this is a good investment for us. Please show all work
You are considering the purchase of an investment that would pay you $5,000 per year for Years 1-5, $3,000 per year for Years 6-8, and $2,000 per year for Years 9 and 10. If you require a 14%, and the cash flows occur at the end of each year, what is the modified internal rate of return if the initial outlay is $10,000 and the cash flows are reinvested at the required rate of return? 14% 23% 28% 46%
ARCABE Enterprises is trying to select the best investment from among four alternatives. Each alternative involves an initial outlay of P100,000. Their cash flows follow(see image) Evaluate and rank each alternative based on: a) discounted payback period (use a 10% for cost of capital) b) net present value (use a 10% discount rate) c) internal rate of return.
handwritten. 1. Determine which of the two following cash flows is preferable, using a MARR of 8%. You can use any method you prefer and may assume repeatability is an acceptable assumption. Option A requires an initial investment of $39000 and produces for five years an annual return of $11200. The salvage value at five years is expected to be $6000. Option B requires an initial investment of $49000 and produces an annual return for seven years of 13500. Option B requires an additional maintenance cost of $1500 in the third year. The salvage value at seven years is expected to be $10700.
Skysong, Inc. is using a discounted cash flow model. Scenario 1: Cash flows are fairly certain $180/year for 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 4% Identify which model Skysong might use to estimate the discounted fair value under each scenario, and calculate the fair value. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answers to 2 decimal places, e.g. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1 Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Scenario 1. Skysong might use Fair Value Scenario 2: Skysong might use Fair Value $ Scenario 2: Cash flows are uncertain 75% probability that cash flows will be $180 in 5 years 25% probability that cash flows will be $95 in 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 4% $ traditional approach ✓ model. expected cash flow model.
The value in pounds of a fund at time t = 0 is V0 = 50, 000. After one year (at t = 1) it has increased to V1 = 51, 500 and at that time £1, 500 is withdrawn. After two years (at t = 2) the fund is worth V2 = 50, 800. (a) Compute the time-weighted rate of return. (b) If the fund is liquidated after two years what is the yield that has been achieved?
For the following levered total cash flow returns, what is the levered NPV, and should you pursue the investment if your levered discount rate is 14%? Year Total Cash Flow (Pre-Tax) $ 31,795; yes 31,795; no x-31,795; yes -31,795; no 0 (400,000) $ 1 30,000 $ 2 30,900 $ 3 4 31,827 $ 32,782 $ 5 533,765

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