A venture will provide a net cash inflow of $57,000 in Year 1. The annual cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of $739,000 and has a required return of 15.6 percent. The company is somewhat unsure about the growth rate assumption. At what constant rate of growth would the company just break even? O 9.48% O 9.29% O 7.89% O 8.49%

A venture will provide a net cash inflow of $57,000 in Year 1. The annual cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of $739,000 and has a required return of 15.6 percent. The company is somewhat unsure about the growth rate assumption. At what constant rate of growth would the company just break even? O 9.48% O 9.29% O 7.89% O 8.49%

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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Diana, Industries is considering a project which has the following cash flows: Year Cash Flow 0 ? 1 $4,000 2 4,000 3 3,000 4 1,500 The project has a payback period of 2.5 years. The firm’s cost of capital is 12 percent. What is the project’s net present value (NPV)? What does the NPV rule advice regarding this investment opportunity?
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow -$238,000 $66,100 $84,300 $141,300 $122,300 $81,500 Use the discounted payback decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Discounted payback Should it be accepted or rejected? O Rejected O Accepted years
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow: −$7,100 $1,000 $2,200 $1,400 $1,400 $1,200 $1,000 Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Should it be accepted or rejected?multiple choice accepted rejected
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: 1 2 3 4 5 Cash flow: -$239,000 $66,200 $84,400 $141,400 $122,400 $81,600 Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) IRR % Should it be accepted or rejected? O accepted O rejected
Grey Fox Aviation Company is analyzing a project that requires an initial investment of $450,000. The project’s expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 –175,000 Year 3 475,000 Year 4 450,000 Grey Fox Aviation Company’s WACC is 10%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 26.73% 27.89% 20.92% 23.24% If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements best describes the difference between the IRR method and the MIRR method? The IRR method uses only cash inflows to calculate the IRR. The MIRR method uses both cash inflows and cash outflows to calculate the MIRR. The IRR method assumes that cash flows are reinvested at a rate of return equal to the IRR. The MIRR method assumes that cash flows…
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$362,000 $65,300 $83,500 $140,500 $121,500 $80,700 Use the PI decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Should it be accepted or rejected?multiple choice accepted rejected
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$ 225,000 $ 64,800 $ 83,000 $ 140,000 $ 121,000 $ 80,200 Use the IRR decision rule to evaluate this project. Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
A venture will provide a net cash inflow of $57,000 in Year 1. The annual cash flows are projected to grow at a rate of 7 percent per year forever. The project requires an initial investment of $739,000 and has a required return of 15.6 percent. The company is somewhat unsure about the growth rate assumption. At what constant rate of growth would the company just break even? O 9.48% 9.29% O 7.89% O 8.49% A Moving to another question will save this response. « >
"Consider a $1310 investment that will produce perpetual cash flows. If the demand is high, the expected cash flows will be $161 per year. Otherwise, the expected cash flows will be $46 per year. The initial probabilities for high vs. low demand are 80%/20%, but after the first cash flow is realized, the firm will know with certainty whether the demand is high or low. At that time, the project can be abandoned with a terminal cash flow of $1259. The cost of capital is 5%. What is the NPV including the option to abandon?" A) "$1,649 " B) "$1,284" C) "$1,515 " D) "$1,426" E) "$1,620"
9. Hard Spun Industries (HSI) has a project that it expects will produce a cash flow of $3.7 million in 13 years. To finance the project, the company needs to borrow $2.5 million today. The project will also produce intermediate cash flows of $250,000 per year that HSI can use to service coupon payments of $125,000 every six months. Based on the risk of this investment, market participants will require a 9.5% yield. If HSI wishes a maturity of 13 years (matching the arrival of the lump sum cash flow), what does the face value of the bond have to be? Recall that the compounding interval is 6 months and the YTM, like all interest rates, is reported on an annualized basis. (Enter just the number in dollars without the $ sign or a comma and round off decimals to the closest integer, i.e., rounding $30.49 down to $30 and rounding $30.50 up to $31.) Enter answer here
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$356,000 $65,700 $83,900 $140,900 $121,900 $81,100 Use the NPV decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Should it be accepted or rejected?multiple choice accepted rejected
A firm is considering investing in a new project with an upfront cost of $300 million. The project will generate an incremental free cash flow of $50 million in the first year and this cashflow is expected to grow at an annual rate of 5% forever. If the firm's WACC is 11%, what is the value of this project? A. $833.3 million B. $875.0 million C. $575.0 million D. $533.3 million

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