Assume a $200,000 investment and the following cash flows for two products: Year Product X Product Y 1 $60,000 $40,000 2 90,000 70,000 80,000 20,000 3 4 40,000 40,000 a. Calculate the payback for products X and Y. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Product X Product Y years years b. Which alternative would you select under the payback method? O Product X is selected O Product Y is selected

Assume a $200,000 investment and the following cash flows for two products: Year Product X Product Y 1 $60,000 $40,000 2 90,000 70,000 80,000 20,000 3 4 40,000 40,000 a. Calculate the payback for products X and Y. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Product X Product Y years years b. Which alternative would you select under the payback method? O Product X is selected O Product Y is selected

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 project has the following cash flows: Year Cash Flow 0 $ 37,000 1 -18,000 227,000 What is the IRR for this project? (Round the final answer to 2 decimal places.) IRR % What is the NPV of this project, if the required return is 11% ? ( Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ What is the NPV of the project if the required return is 0% ? ( Negative answer should be indicated by a minus sign. Omit $ sign in your response.) NPV $ What is the NPV of the project if the required return is 22 % ? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $
Consider the following cash flows: Year Cash Flow 0 -$ 29,200 123 14,500 14,400 10,800 a. What is the profitability index for the cash flows if the relevant discount rate is 12 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. b. What is the profitability index if the discount rate is 17 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. c. What is the profitability index if the discount rate is 24 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. a. Profitability index b. Profitability index c. Profitability index
Net Present Value Method, Present Value Index, and Analysis for a service company Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: Ramp Computer Facilities Network $423,052 Amount to be invested Annual net cash flows: Year 1 Year 2 Year 3 Year 1 2 3 4 5 6 7 8 9 10 6% Present Value of $1 at Compound Interest 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 Maintenance Equipment $677,579 0.424 0.386 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 305,000 284,000 259,000 0.361 0.322 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 220,000 198,000 176,000 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 $188,789 125,000 86,000 63,000
A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 1 2 3 162,000 54,000 85,000 69,000 What is the project's IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return %
Mendez Company has identified an investment project with the following cash flows. Year 1234 Cash Flow $ 1,090 940 1,490 1,850 a. If the discount rate is 12 percent, what is the present value of these cash flows? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the present value at 15 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the present value at 21 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Present value at 12 percent b. Present value at 15 percent c. Present value at 21 percent
A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 -$ 152,000 1 64,000 2 75,000 3 59,000 a. What is the project's IRR? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the required return is 13 percent, should the firm accept the project? % a. Internal rate of return b. Project acceptance
es McCann Co. has identified an investment project with the following cash flows. Year 1 234 a. If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value at 16 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the present value at 25 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Cash Flow $820 1,130 1,390 1,525 b. C. Present value at 10% Present value at 16% Present value at 25%
Consider the following cash flows: Year 01234 Cash Flow -$5,100 1,500 2,600 1,300 1,000 What is the payback period for the cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Payback period years
A real estate investment has the following expected cash flows: Year Cash Flows 1 $14,000 2 19,000 3 19,000 4 25,000 The discount rate is 3 percent. What is the investment’s present value? Round your answer to 2 decimal places
None
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$350,000 −$35,000 1 25,000 17,000 2 70,000 11,000 3 70,000 17,000 4 430,000 11,000 Assume you require a 15 percent return on your investment and a payback of 4 years. a. If you apply the discounted payback criterion, which investment will you choose? Why? b. If you apply the NPV criterion, which investment will you choose? Why? c. Based on your answers in (a) and (b), what you can say anything about the IRR of both projects? which project will you finally choose? Why?
Consider the following cash flows: Year Cash Flow 0 −$ 29,000 1 14,700 2 14,200 3 10,600 What is the profitability index for the cash flows if the relevant discount rate is 10 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. What is the profitability index if the discount rate is 15 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. What is the profitability index if the discount rate is 22 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.

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