Required informationA potential investment has a cost of $395,000 and a useful life of 5 years. Annual cash sales from the investment areexpected to be $255,338 and annual cash operating expenses are expected to be $100,588. The expected salvage valueat the end of the investment's life is $50,000. The company has a before-tax discount rate of 17%.Required:Calculate the following. (Round dollar amounts to the nearest whole dollar and IRR to one decimal place (i.e. .055 = 5.5%). Enternegative amounts with a minus sign.)Annual PMT of the investmentFV of the investmentNPV of the investmentIRR of the investment0000$

Cost of investment = $395,000Life = 5yearsAnnual cash sales = $255,338Annual cash operating expense…

Answered: A potential investment has a cost of…

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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The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Operating Income 1 2 3 4 5 $100,000 40,000 40,000 10,000 10,000 Net Cash Flow $180,000 120,000 100,000 90,000 120,000 The net present value for this investment is
A commercial property has PGI of $5 million, expenses of 40% of EGI and the vacancy is underwritten at 10%. What values would the following parameters suggest for the property. 70% LTV with a rate of 4.5% and 360 month amortization schedule. Given a property value of $45 million, calculate PGIM, EGIM, Cap Rate, Cash on Cash return and DSSCR.
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If produced by Plan A, a producer’s initial capital cost will be $120,000, its annual operating cost will be $30,000, and its salvage value after 4 years will be 20,000. With Plan B, there is a first cost of $240,000, an annual operating cost of $10,000, and $40,000 salvage value after 4-year life. Based on a present worth analysis at 15% interest rate, which plan should be chosen?
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Cardinal Company is considering a project that would require a $2,782,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $200,000. The company’s discount rate is 18%. The project would provide net operating income each year as follows: Sales $ 2,873,000 Variable expenses 1,019,000 Contribution margin 1,854,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 754,000 Depreciation 516,400 Total fixed expenses 1,270,400 Net operating income $ 583,600 Required:If the equipment’s salvage value was $400,000 instead of $200,000, what would be the project’s simple rate of return? (Round your answer to 2 decimal places.)
Wade Corporation is reviewing an investment proposal. The initial cost is $105,000. Estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Year 1 2 3 4 5 Investment Proposal Annual Book Value Cash Flows $70,000 42,000 21,000 7,000 0 $45,000 40,000 35,000 30,000 25,000 Annual Net Income $16,000 18,000 20,000 22,000 24,000 Wade Corporation uses a 15% target rate of return for new investment proposals. a. What is the cash payback period for this proposal? b. What is the annual rate of return for the investment? c. What is the net present value of the investment?
The management of California Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Operating Income Net Cash Flow 1 $100,000 $180,000 2 40,000 120,000 3 20,000 100,000 4 10,000 90,000 5 10,000 90,000 The present value index (rounded to two decimal places) for this investment is a. 1.45 b. 1.14 c. 0.70 d. 0.88

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