CENGAGE MINDTAPAssignment: Chapter 09 Capital Budgeting TechniquesLocke Manufacturing Inc. is analyzing a project with the following projected cash flows:Year Cash Flow01234-$1,324,800300,000450,000546,000360,000This project exhibitsLocke's desired rate of return is 7.00%. Given the cash flows expected from the company's new project, compute the project's anticipated modifiedinternal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.)O 6.70%O 7.53%8.37%cash flows.O 9.21%Q Search this courseX CENGAGE MINDTAPAssignment: Chapter 09 Capital Budgeting TechniquesLocke Manufacturing Inc. is analyzing a project with the following projected cash flows:Year Cash Flow01234-$1,324,800300,000450,000546,000360,000This project exhibitsLocke's desired rate of return is 7.00%. Given the cash flows expected from the company's new project, compute the project's anticipated modifiedinternal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.)O 6.70%O 7.53%8.37%cash flows.O 9.21%Q Search this courseX

This project exhibits conventional cash flow.Conventional cash flow refers to a pattern of cash…

Answered: Assignment: Chapter 09 Capital…

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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Accounting Draw the cash flow diagram for the given project below and then calculate the project net profit. The following table shows the activities description, dependency, duration, and cost elements. Assume the followings: Project overhead 8%. Tax 3%. Bond 1.25%. Profit 6%. Interest rate 9% per year. Down payment 10% with a guarantee letter, which costs 0.25% per month paid to the bank at the project start date. A performance guarantee letter of 10% will be submitted from contractor at the project begin. Invoices are submitted every month and will be paid a month later. Retention 10% and will be paid at the last invoice. Subcontractors: retention 10% will be paid at the last invoice, down payment 20%. Labor: labor expenses to be paid bi-weekly. Equipment: equipment expenses
1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Cold Goose Metal Works Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,225,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $500,000 Year 3 $475,000 Year 4 $500,000 Cold Goose Metal Works Inc.’s weighted average cost of capital is 10%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$2,997,487 -$297,487 -$888,360 -$772,487 Making the accept or reject decision Cold Goose Metal Works Inc.’s decision to accept or reject project Beta is independent of its decisions on other projects. If…
Project A has the following estimated cash flows and present values:Year Cash flow $ Discount factor@ 12% Present value $0 Cost (95 000) 1.0 (95 000) 1–5 Contributionper annum 50 000 3.605 180 250 1–5 Fixed costsper annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 The benefit of using sensitivity analysis in an investment appraisal would be:
Assume a project has cash flows of -$54,300, $18,200, $37,300, and $14,300 for Years 0 to 3, respectively. What is the profitability index given a required return of 12.6 percent? 1.02 .95 .98 1.06 ☐ 1.00
2. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Falcon Freight: Falcon Freight is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $800,000. Falcon Freight has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Falcon Freight’s WACC is 7%, and project Sigma has the same risk as the firm’s average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $275,000 Year 2 $400,000 Year 3 $500,000 Year 4 $400,000 Which of the following is the correct calculation of…
answer must be correct
Use the Modified IRR (MIRR) method to determine the rate of return of a project that has the following cash flow diagram. The investment rate is 15% and the borrowing rate is 12%. g = 20% $3 $3 $3 $3 years 11 3. 4 6. 7 8 9 10 $2 S2 $2 $2
Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Hungry Whale Electronics is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,000,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $425,000 Year 3 $500,000 Year 4 $475,000 Hungry Whale Electronics’s weighted average cost of capital is 7%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$1,152,891 -$1,814,575 -$1,577,891 -$4,577,891 Making the accept or reject decision Hungry Whale Electronics’s decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it…
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