An engineer is establishing his own small company. He investment of P500,000 which he will recover in 15 years. It is estimated that his annual revenue will be P900,000 per year and his annual cost is P750 000. If the he expects to earn at least 20% of his capital, should he invest? Note: Use Rate of Return Method and Annual Worth Method.

An engineer is establishing his own small company. He investment of P500,000 which he will recover in 15 years. It is estimated that his annual revenue will be P900,000 per year and his annual cost is P750 000. If the he expects to earn at least 20% of his capital, should he invest? Note: Use Rate of Return Method and Annual Worth Method.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...

See similar textbooks

Similar questions

Assume that the price of real estate is determined by P=PV(all cash flows generated by the real estate). After you have graduated you work for some years and can save some money. You decide to invest in a house which you want to rent out for a rate of 12,000 pound per month. Assume that the rental rate will increase with 1.2% per year (which is 0.1% per month). (For the sake of simplicity, also assume that there are no further costs involved e.g. renovating or repair). a) As the market risk of renting out the house is low, you think that a discount rate of 5.5% (APR with monthly compounding) would be appropriate. What is the price of the house under the assumption that the cash flows from rent will last forever? b) If discount rate is 1% lower than 5.5% what is the price of the house? c) You want to make the valuation of the house more realistic by assuming that the time horizon for the valuation should be 50 years. Again, you assume that the house will generate SEK 12,000 rental…
An investor has an opportunity to buy a commercial property and to sell it after 15 years. Rents from the property will be $24,000 and he expects them to increase at a rate of 3% per year annually. His required rate of return on this investment is 12%. At what price would he be indifferent to buying or not buying the investment? Round off to the nearest $1. Select one: O a. $213,656 O b. $800,000 O c. $171,429 O d. $240,000
An investor is considering the following opportunity: He will put capital into a start-up company today. He will not receive any cash flows from the investment until end of the 5th year. At that point, he will receive 11.00 years of $20,000.00 per year. If his discount rate on this investment is 14.00%, what is the value of this opportunity today?
if magui will invest her money today worth 500000 in JMC Mining company, how much is the expected annual net income if the money has an interest rate of 7% and yield of investment of 6% for 10 years? Annual Income = ___ (2decimal places only) All answer must be rounded off. Do not store values on your calculator. Use the previous answer if needed.
Chris offers you an investmet where if ou investment where if you invest $1,000 today, he'll return you $1,200 in 2 years. What is the annual rate of return of this investment? Choose the closest. a) 10.5% b) 9.0% c) 10.0% d) 9.5%
Suppose you invest $2,000 today and receive $11,000 in five years. a. What is the internal rate of return (IRR) of this opportunity? b. Suppose another investment opportunity also requires $2,000 upfront, but pays an equal amount at the end of each year for the next five years. If this investment has the same IRR as the first one, what is the amount you will receive each year?
You have an investment opportunity that requires an initial investment of $5,000 today and will pay $6,000 in one year. What is the IRR of this opportunity?
John has an investment opportunity that promises to pay him $16,000 in four years. Suppose the opportunity requires John to invest $13,200 today. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What is the interest rate John would earn on this investment? (Round your interest rate to the nearest whole percentage.) Solve for i Present Value: n = i = Future Value:
An investor pays P1,100,000 for a mine which will yield a net income of P200,000 at the end of each year for 10 years and then will become useless. He accumulates a replacement fund to recover his capital by annual investments at 4.5%. At what rate (%) does he receive interest on his investment at the end of each year?
Determine the time value of money. Formula: FV = PV(1 + i)N or PV = FV × (1 + i)-N 1. 1. Assume you have just been hired with an annual salary of P300,000. Ifyou expect annual raises of 5%, what will your salary be for thefollowing? a. 5 years?b. 10 years?c. 15 years?d. 30 years? 2. A farmland is currently selling for P200,000 per hectare. If the rate ofincrease has been 2% annually, what was the price of the land 10 yearsago?
You have an investment opportunity that requires an initial investment of $5,500 today and will pay $11,500 in one year. What is the IRR of this opportunity?
Investment A requires you to pay $30,000 at t = 0 and you will receive $49,000 after five years. Investment B costs $73,000 and provides a cash flow of $128,000 after seven years. What is the rate of return for each of the two investments?