An advertising campaign will cost $300,000 for planning and $30,000 in each of the next five years. It is expected to increase revenues permanently by $30,000 per year. Additional revenues will be gained in the pattern of an arithmetic gradient with $25,000 in the first year, declining by $5,000 per year to zero in the sixth year. Estimate the IRR of this investment. O 7% < IRR < 8% 8% < IRR < 9% 9% < IRR < 10% 10% < IRR < 11% 11% < IRR < 12%

An advertising campaign will cost $300,000 for planning and $30,000 in each of the next five years. It is expected to increase revenues permanently by $30,000 per year. Additional revenues will be gained in the pattern of an arithmetic gradient with $25,000 in the first year, declining by $5,000 per year to zero in the sixth year. Estimate the IRR of this investment. O 7% < IRR < 8% 8% < IRR < 9% 9% < IRR < 10% 10% < IRR < 11% 11% < IRR < 12%

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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Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental cash flow projects: Year Sales (Revenues) Cost of Goods Sold (50% of Sales) - Depreciation = EBIT - Taxes (20%) = unlevered net income - 0 OA. $37,500 OB. $60,000 OC. $50,000 O D. $70,000 1 125,000 62,500 25,000 37,500 7,500 30,000 25,000 - 5000 + Depreciation + changes to working capital - capital expenditures - 90,000 The free cash flow for the first year of Epiphany's project is closest to: 2 125,000 62,500 25,000 37,500 7,500 30,000 25,000 -5000 3 125,000 62,500 25,000 37,500 7,500 30,000 25,000 -5000
Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $26,500 and generates cash inflows of $9,000 per year for 7 years. Project Board Shorts requires an initial investment of $38,333 and produces cash inflows of $12,500 per year for 8 years. The IRR of project T-Shirt is %. (Round to two decimal places.)
Calculating the IRR for Project Long Project Long is expected to provide five years of cash inflows and to require an initial investment of $100,000. The required rate of return or discount rate that is appropriate for valuing the cash flows of Project Long is 17 percent What is Project Long's IRR, and is it a good investment opportunity?
You are responsible to manage an IS project with a 4-year horizon. The annal cost of the project is estimated at $40,000 per year, and a one-time costs of $120,000. The annual monetary benefit of the project is estimated at $96,000 per year with a discount rate of 6 percent. a. Calculate the overall return on investment (ROI) of the project. b. Perform a break-even analysis (BEA). At what year does break-even occur?
An investment of $158397 is expected to generate an after-tax cash flow of $94000 in one year and another $129000 in two years. The cost of capital is 10 percent. What is the internal rate of return? O 24.27 percent O 24.47 percent O 24.07 percent O 24.67 percent
Calculate the IRR and NPV for a $1,000,000 investment with a 5% return annually over a 5 year period for a total of $ 1,200,000. Use a WACC value of 14.54%.
Calculate the net cash inflows for each of the four years so that the NPV of the proposed investment is zero.
Revenues generated by a new fad product are forecast as follows: Year Revenues $45,000 1 2 35,000 3 25,000 4 20,000 Thereafter 0 Expenses are expected to be 40% of revenues, and working capital required in each year is expected to be 20% of revenues in the following year. The product requires an immediate investment of $60,000 in plant and equipment.
XYZ Corporation is considering a capital budgeting project and requires a detailed analysis. The company has provided youwith the following financial information and ratios:Return on Investment (ROI): 15%Payback Period: 3 yearsNet Present Value (NPV): R50,000Internal Rate of Return (IRR): 12%Cash Flows:Year 1: R20 000Year 2: R30 000Year 3: R40 0001.4 Calculate the ARR for XYZ Corporation. Assume depreciation is calculated on the straight-linemethod and that the project has a scrap value of R5000
You have been tasked with recommending one of the two investment projects for acceptance by your company. Project 1 costs $100,000 to implement today (it is a cost), it will bring subsequent positive cash flows of $50,000 at the end of year one; and subsequently $30,000; $45,000; $8,000. Project 2 initial cost is $14,000, and subsequent cash flows are $7,000 per year for 3 years. Your company is using WACC of14% for both projects. a. Calculate NPV and IRR for each project, and decide which one to recommend. b. Calculate MIRR for projects A and B. Which project would you recommend based on MIRR? c. Find the crossover rate. What does this rate represent? Describe in YOUR OWN words.
ANSWER ALL THE QUESTIONS THANKS
Chase Brew Inc is considering an investment with the following information: initial investment in assets = $1,600,000 to be depreciated to $0 via straight-line method over 8-year project life sales will increase by $1,750,000/year expenses will increase by $1,240,000/year firm's marginal tax rate is 28% What is the incremental after-tax cash flow (OCF) per year associated with the following project? Enter answer in dollars, rounded to the nearest dollar.

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