An engineer has been offered an investment opportunity that will require an immediate cash outlay of $40,000 for a cash inflow of$3500 for each year of investment. However, she must state now the number of years she plans to retain the investment. Additionally,if the investment is retained for 6 years, a lump-sum amount of $36,000 will be returned to her; after 10 years, the lump-sum return isanticipated to be $52,500, and after 15 years, it is estimated to be $59,000. Money is currently worth 9% per year. Determine thepresent worth values for 6 years, 10 years, and 15 years, and decide if the decision is sensitive to the retention period?The present worth when the investment is retained for 6 years is $The present worth when the investment is retained for 10 years is $The present worth when the investment is retained for 15 years is $✓to the investment period.The present worth is sensitive

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Answered: An engineer has been offered an…

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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Purple Cloud Inc. has $500,000 to invest. The company is trying to decide between two alternative uses of the funds.One alternative provides $65,000 at the end of each year for 10 years, and the other is to receive a single lump-sumpayment of $900,000 at the end of the 10 years. Which alternative should Purple Cloud select? Assume the interestrate is constant over the entire investment
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $5,440 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,360 plus an additional investment at the end of the second year of $6,800. What is the NPV of this opportunity if the interest rate is 1.6% per year? Should Marian take it?
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $5,280 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,320 plus an additional investment at the end of the second year of $6,600. What is the NPV of this opportunity if the interest rate is 2% per year? Should Marian take it? What is the NPV of this opportunity if the interest rate is 2% per year? The NPV of this opportunity is $ (Round to the nearest cent.) .
If you invest $10,000 per period for the following number of periods, how much would you have in each of the following instances? Use Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods. In 50 years at 8 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4,440 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,110 plus an additional investment at the end of the second year of $5,550. What is the NPV of this opportunity if the interest rate is 1.5% per year? What is the NPV of this opportunity if the interest rate is 1.5% per year? The NPV of this opportunity is $_______ (Round to the nearest cent)
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $49,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $550 per hour and her opportunity cost of capital is 16% per year. What does the IRR rule advise regarding the payment arrangement? (Hint: Find the monthly rate that will yield an effective annual rate of 16%.) What about the NPV rule? The annual IRR is ☐ %. (Round to two decimal places.)
An award is being established, and it will pay $11,000 every four years, with the first installment being paid in four years. The award will be given for an indefinitely long period of time. If the interest rate is 2% per annum, what lump-sum amount of money (invested now) will be required to endow this award forever?
Stu is working on a bid for a contract. Thus far, he has determined that he will need $218,000 for fixed assets and another $41,000 for net working capital at Time 0. He had also determined that he can recover $79,900 aftertax for the combined fixed assets and net working capital at the end of the 3-year project. What operating cash flow will be required each year for the project to return 14 percent in nominal terms?
Joe Pierce has been offered the opportunity of investing $178,556.90 now. The investment will earn 8% per year and at the end of its life will return $500,000 to Joe. How many years must Joe wait to receive the $500,000?
Bill Williams has the opportunity to invest in project A that costs $6,900today and promises to pay $2,100, $2,400, $2,400, $2,000 and $1,800over the next 5 years. Or, Bill can invest $6,900 in project B that promises to pay $1,500, $1,500, $1,500, $3,600 and $4,000 over the next 5 years. (Hint: For mixed stream cash inflows, calculate cumulative cash inflows on a year-to-year basis until the initial investment is recovered.) a. How long will it take for Bill to recoup his initial investment in project A? b. How long will it take for Bill to recoup his initial investment in project B? c. Using the payback period, which project should Bill choose? d. Do you see any problems with his choice?
Blossom Googal owns a garage and is contemplating purchasing a tire retreading machine for $32.820. After estimating costs and revenues, Blossom projects a net cash inflow from the retreading machine of $4,700 annually for 11 years. Blossom hopes to earn a return of 8% on such investments. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What is the present value of the retreading operation? (Round answer to 2 decimal places, eg. 25.25) Present value 2$ Should Blossom Googal purchase the retreading machine?
An investment promises to pay $7,000 at the end of each year for the next six years and $3,000 at the end of each year for years 7 through 10. Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest cent. If you require a 15 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?$ Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 15 percent required rate of return?$

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