Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the net cash inflows to be $40,000 annually for 7 years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assuming that the required return is 15%, what is the project's Pl? Should it be accepted? a. 1.04; no b. 1.00; indifferent O c. 1.04; yes O d. 0.88; no Oe. 0.88; yes

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the net cash inflows to be $40,000 annually for 7 years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assuming that the required return is 15%, what is the project's Pl? Should it be accepted? a. 1.04; no b. 1.00; indifferent O c. 1.04; yes O d. 0.88; no Oe. 0.88; yes

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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Question

Bill plans to open a do-it-yourself dog bathing center in a storefront. The
bathing equipment will cost $160,000. Bill expects the net cash inflows to
be $40,000 annually for 7 years, after which he plans to scrap the
equipment and retire to the beaches of Jamaica. Assuming that the
required return is 15%, what is the project's Pl? Should it be accepted?
a. 1.04; no
b. 1.00; indifferent
c. 1.04; yes
O d. 0.88; no
e.
0.88; yes

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big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $105,000 and will generate net cash inflows of $20,000 per year for 9 years. What is the project's NPV using a discount rate of 7 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 13 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not?
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Choosing between two projects with acceptable payback periods Shell Camping Gear, Ic., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John ShellI, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table: E. a. Determine the payback period of each project. b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in? a. The payback period of project A is years. (Round to two decimal places.) The payback period of project B is years. (Round to two decimal places.) b. Because they are mutually exclusive, Shell must choose one. Using the payback period, which project should the company invest in? (Select the best answer below.) O Project B would be preferred over project A because the larger cash flows are in the early years of the project. Data Table O Project A would be preferred over project B…
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