Written answers not allowed.Only typed answer.A project has a cost of $6000. The project will have a payout of X at the end of the first year.This initial payout X will grow at the rate of 10% per year for the next 2 years, then by 8% peryear for the next year, and then at the rate of 5% per year for the following 3 years. You believethe riskiness of this investment is 9%.a. Calculate the smallest X that would entice you to invest.b. Use Goal Seek or Solver to determine level of riskiness that would yield a net presentvalue of $2500 if the initial payment is $1500.

Net present value is difference between the present value of cash inflows and present value of cash…

Answered: A project has a cost of $6000. The…

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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Assume you invest $5,100 today in an investment that promises to return $6,928 in exactly 10 years. a. Use the present-value technique to estimate the IRR on this investment. b. If a minimum annual return of 9% is required, would you recommend this investment? #69 Part 1 a. The IRR of the investment is enter your response here%. (Round to the nearest whole percent.) Part 2 b. If a minimum return of 9% is required, would you recommend this investment? (Select the best choice below.) A. No, because this investment yields less than the minimum required return of 9%. B. Yes, because a minimum required return of 9% does not compensate for an investment that lasts longer than one year. C. No, because a minimum required return of 9% is an arbitrary choice for an investment of this risk level. D. Yes, because this investment yields more than the minimum required return of 9%
A project has two possible outcomes. The good outcome returns $9,000 next year and occurs 59% of the time. The bad outcome is total failure, retuming $0 , the rest of the time. If the risk free interest rate is 3.2% , the expected market return is 12.6% , and the project beta is 1.1 , what is the price of the project today?
Suppose you considering investing $33 to earn $5.9 every year for 9 years. If the annual interest rate is 4.8%, what is the payback of this project? Suppose you considering investing $22 to earn $4.0 every year for 7 years. If the annual interest rate is 3.4%, what is the payback of this project?
Consider a project with free cash flows in one year of $130,000 in a weak market or $180,000 in a strong market, with each outcome being equally likely. The initial investment required for the project is $100,000, and the project's unlevered cost of capital is 20%. The risk-free interest rate is 10%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way that is, what is the initial market value of the unlevered equity? c. Suppose the initial $100,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity in a weak market and a strong market at the end of year 1, and what is its initial market value of the levered equity according to MM? Assume that the risk-free rate remains at its…
An investment will pay $725 in 2,3,4 and 5 years from now. Furthermore, it will pay $4,400 in 9, 10 and 11 years. What is the most you would pay for this investment if you require a 10% return? answer in dollars without the symbol.
what is the maximum amount you would be willing to pay for an investment opportunity that you expect to bring you $1,100 in one year, 2,420 in 2 years and $3000 per year for the following 5 years given that you require a return of 10% on investment with similar level of risks? 1. 12,398 2. 17,000 3. 14,372 4. 18,520 5. 11,372

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