Based on the information above, identify which project (Project A or B) should be accepted? Explain why. By changing the figures in the excel template (above), assume the interest rate for Project A fell to 13%, and Cash outflow (The initial investment) was $950,000, Cash Inflows was $350,000 per annum for the 6 years, and Net inflows was also $250,000. For Project B, assume interest rate also fell to 13% but Cash outflow, Inflow and Net Inflows remain the same. What is the new NPV for each of the project? Would you receommend that any of these t1

Based on the information above, identify which project (Project A or B) should be accepted? Explain why. By changing the figures in the excel template (above), assume the interest rate for Project A fell to 13%, and Cash outflow (The initial investment) was $950,000, Cash Inflows was $350,000 per annum for the 6 years, and Net inflows was also $250,000. For Project B, assume interest rate also fell to 13% but Cash outflow, Inflow and Net Inflows remain the same. What is the new NPV for each of the project? Would you receommend that any of these t1

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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Compute the payback statistic for Project A if the appropriate cost of capital is 7 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time: 0 1 2 3 4 5 Cash flow: −$2,300 $870 $870 $780 $560 $360
c. A company is planning to invest in a project over a 5-year period, but wants to know its financial implications. It expects the cash in-flow return on the investment to steadily increase over the 5 years. Using the information below, help determine the Total Net Cash Flows, the Net Present Value and the estimated Payback Period. Note: Estimate the payback period to the nearest year. Discount Rate 12% Investment Project Initial Investment Year 1 Year 2 Year 3 Year 4 Year 5 Cash Flow $ $ $ $ $ $ Total Net Cash Flow (5,000) 800 ? 900 ? 1,500 ? 1,800 ? 3,200 NPV of investment Estimated Payback Period
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$425,000 44,000 62,000 79,000 540,000 -$40,000 20,400 13,300 18,600 15,400 2 4 The required return on these investments is 10 percent. a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) e. Based on your answers in (a) through (d), which project will you finally choose? a. Project A Project B b. Project A Project B c. Project A years years % Project B % d. Project A…
Find the rate or return on an investment if it generated year end payments of $5,000 for 15 years, but required cash outlays of $20,000 today and $15,000 in 3 years from today. (16.3 IRR CPT)
A company is considering a 10-year capital investment project. The project has annual positive cash flows each year. The accounting manager has calculated the NPV of the same project using three different costs of capital (8%, 10% and 18 %) as discount rates. Select the most logical combination of NPVS from the choices given. Note: You cannot calculate the NPVS nor do you need to. O $(5,743) $3,152 $6,612 O $(5,743) $6,612 $3,152 $3,152 $6,512 $(5,743) O $6,512 $3,152 $(5,743) O None of the above
An investment project has annual cash inflows of $5,000, $3,300, $4,500, and $3,700, for the next four years, respectively. The discount rate is 14 percent. a. What is the discounted payback period for these cash flows if the initial cost is $5,100? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the discounted payback period for these cash flows if the initial cost is $7,200? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the discounted payback period for these cash flows if the initial cost is $10,200? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Discounted payback period b. Discounted payback period c. Discounted payback period years years years
Roopali is considering an investment proposal with the following cash flows: Initial investment-depreciable assets $45,000 Initial investment-working capital 5,000 Net cash inflows from operations (per year for 7 years) 10,000 Disinvestment-depreciable assets 3,000 Disinvestment-working capital 2,000 Determine the payback period. Round to one decimal place. Determine the accounting rate of return on initial investment. round to three decimal places. Determine the accounting rate of return on average investment
The management of Peridot Inc. is submitting a proposal to the Board of Directors for a new facility with the following cash flows. Year Cash flow 0 -214 1 52 2 61 3 74 4 82 The company's hurdle rate is 9%. internal rate of return for the proposed project is closest to: A. 10.15%. B. 9.06%. C. 9.00%.
Doak Corporation is evaluating a project with the following cash flows: Year 0 1 2 Cash Flow -$ 53,000 16,700 21,900 27,300 20,400 -8,600 The company uses an interest rate of 10 percent on all of its projects. Calculate the MIRR of the project using all three methods. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Discounting approach Reinvestment approach. Combination approach Sover 17.00 % % %
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 (434,000) (44,500) 1 $39,500 $21,300 2 $66,500 $12,400 3 $83,500 $23,100 4 $549,000 $19,900 The re quired return on these investments is 11 percent. a. What is the payback period for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. c. What is the IRR for each project? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. d. What is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. e. Based on your answers in (a) through (d), which project will you finally choose?
Complete the table and show the solution. Then, compute for the payback period.
Determine the following: 1. Determine the initial investment required by the press. 2. Determine the annual after tax cash inflows attributable to the press from year 1 to 4 3. Determine the after tax cash flow on year 5. 4. ASSUMING the project’s IRR is 25%, the discount rate should be above 25% for the project to have a PW higher than zero (true or false) 5. Assuming that at the very last minute, you are able to sell the equipment for 200,000 (without altering the book value). What is the cash flow on year 5? PROBLEM: Wells Printing is considering expanding its business by purchasing a printing press. The cost of the press is $2 million. Installation costs amount to $200,000. As a result of acquisition of the press, sales in each of the next 5 years are expected to be $1.6 million from this new line of business, but product costs (excluding depreciation) will represent 50% of sales. The press will not affect the firm’s net working capital requirements. The press will be depreciated…

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