a. What is the expected NPV of the project? Round your answer to the nearest dollar. $ 2562 b. If Fethe makes the investment today, then it will have the option to renew the franchise fee for 2 more years at the end of Year 2 for an additional payment of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Use the Black-Scholes model to estimate the value of the option. Assume the variance of the project's rate of return is 0.2624 and that the risk-free rate is 6%. Do not round intermediate calculations. Round your answers to the nearest dollar. Use computer software packages, such as Minitab or Excel, to solve this problem. Value of the growth option: $ Value of the entire project: $

a. What is the expected NPV of the project? Round your answer to the nearest dollar. $ 2562 b. If Fethe makes the investment today, then it will have the option to renew the franchise fee for 2 more years at the end of Year 2 for an additional payment of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Use the Black-Scholes model to estimate the value of the option. Assume the variance of the project's rate of return is 0.2624 and that the risk-free rate is 6%. Do not round intermediate calculations. Round your answers to the nearest dollar. Use computer software packages, such as Minitab or Excel, to solve this problem. Value of the growth option: $ Value of the entire project: $

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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A new project will have an intial cost of $10,000. Cash flows from the project are expected to be $3,000, $3,500, and $4,000 over the next 3 years, respectively. Assuming a discount rate of 8%, what is the project's discounted payback period? Question 4 options: 2.23 2.89 2.75 2.10 It does not pay back on a discounted basis
For the following stream of free cash flows, calculate the payback period and indicate whether you would invest in the project with a four year maximum allowable payback period. Year Free Cash Flows 0 -45,452 3.8 years; Invest 3.8 years; Do not invest 4.8 years; Invest 4.8 years; Do not invest 1 10,005 2 14,921 3 12,537 4 10,452 5 21,455
An investment project has annual cash inflows of $6,000, $7,100, $7,900 for the next four years, respectively, and $9,200, and a discount rate of 16 percent. What is the discounted payback period for these cash flows if the initial cost is $9,500? (Do not round your intermediate calculations.) Multiple Choice 3.64 years O 1.82 years O 2.57 years O 0.82 years O 1.32 years
A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below: Years 0 1 2 3 4 S -1,100 900 350 100 10 L -1,100 0 300 550 850 The company's cost of capital is 12 percent, and it can get an unlimited amount of capital at that cost. The cutoff payback period is two years. Which project should the company choose based on payback period and discounted payback period? Question 5 options: Based on payback, choose project L; based on discounted payback, also choose L. Based on payback, choose project L; based on discounted payback, choose neither. Based on payback, choose project S; based on discounted payback, also choose S. Based on payback, choose project S; based on discounted payback, choose neither.
Compute the payback statistic for Project A if the appropriate cost of capital is 7 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time: 0 1 2 3 4 5 Cash flow: −$1,400 $510 $600 $600 $380 $180 Payback years: _______.__
Which is the correct option? San Diego Enterprises is planning to invest in a five-year project costing $270,000. The project is expected to generate annual cash revenues of $90,000 and annual cash expenses (including depreciation) of $30,000. The estimated residual value is $20,000. The project’s payback period is: a. 3.25 years b. 5 years c. 3 years d. 4.5 years
Kara, Incorporated, imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available. Year Cash Flow (A) 0 -$56,000 1 2 3 4 22,500 29,600 24,500 10,500 Cash Flow (B) -$ 101,000 a. Project A Project B b. Project acceptance 24,500 29,500 29,500 239,000 a. What is the payback period for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. Which, if either, of the projects should the company accept? years years
Salalah Methanol Co. has bought some new machinery at a cost of 1250000 OMR. The impact of the new machinery will be felt in the additional annual cash flows of 375000 OMR over the next five years. What is the payback period for this project? If their acceptance period is three years, will this project be accepted? Select one: O a. None of these O b. 3.84 years, no О с. 2.82 years, yes O d. 2.53 years, yes О е. 3.33 yеars, no
Pendleton Products has a project requiring an initial cash investment of $3,400. The project is expected to return $1,100 each period for the next 5 periods, and it has a discount rate of 6%.1. Determine how long it will take, if at all, for the project to have a positive payback.Present value formula:
Big Steve's, a maker of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $130,000 and will generate cash inflows of $37,000 per year for 7 years. If the discount rate is 17%, what is the project's IRR? (Round to two decimal places.) O A.17.00% OB. 20.94% O C. 32.52% OD. 37.33% MacBook Air
Mansukhbhai
HSJ Foods is getting ready to produce a new line of products by investing 185000 OMR. The investment will result in additional cash flows of 52500 OMR , 81250, and 120000 over the next three years. What is the payback period for this project? Select one: a. 1.53 years b. 1.84 years c. 2.62 years d. None of these e. 2.42 years

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