Bill plans to open a do-it-yourself dogbathing center in a storefront. The bathingequipment will cost $160, 000. Billexpects the after-tax cash inflows to be $40,000 annually for seven years, afterwhich he plans to scrap the equipmentand retire to the beaches of Jamaica.Assume the required return is 10% . Whatis the project's discounted payback period(nearest year)?

The initial cost of the project is $160,000.The annual after-tax cash flow is $40,000.The project…

Answered: Bill plans to open a do-it-yourself dog…

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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Similar questions

The owner of a pizza restaurant needs to buy a new pizza oven for the restaurant. The oven costs $450, is expected to last 5 years, and will be depreciated using the straight line method. If the total cash inflows from the new oven are constant at $750 for the next 5 years, and the total cash outflows are constant at $380 for the next 5 years, determine the cash flow for the pizza restaurant in the second year assuming the tax rate is 34%. $ Place your answer in dollars and cents.
2. You plan to purchase an office space in Chamblee's Chinatown for $50,000 at the end of year 2021. You estimate that by renting out that office space, you will receive a stream of rental income for the coming eight years at the end of each year as shown in below. After eight years, you estimate that you can still sell the office space for $45,000 at the end of the eighth year. Is this project a good investment if you project that the normal rate of return in this line of business is 12%? How about if the general rate of return is 15% ? 8%? Year 1 $6,000 Year 5 $7,500 Year 2 $6,500 Year 6 $8,500 Year 3 $7,000 Year 7 $8,500 Year 4 $7,500 Year 8 $8,500 3. Based on the information provided in Step 2 above, compute the Internal Rate of Return for the investment. 4. While you were waiting for your first job interview results to come, you spent several dollars to buy a Georgia Educational Lotto and were lucky enough to win a $1 million prize. The prize is to be awarded in 20 annual payments…
You decide to make monthly payments into a retirement fund earning 4.75% compounded monthly. Note: Payments are made at the end of each period.
You have $400,000 to donate to your college. The college's discount rate is 6%. You donate the money today, but you ask the college to delay the scholarship payment so that the first scholarship payment is made 10 years from today. How large will the annual payment be? The annual scholarship payment will be $. (Round to the nearest cent.)
Jim Smith believes that in 30 years he will need $80,000 to buy a retirement cottage. Assuming he gets an interest rate of 9% compounded annually, how much will he have to invest today, to reach his retirement goal?
You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. Thesign will cost $4,300 and will be posted for one year. You expect that it will generate additionalrevenue of $817 a month. What is the payback period?
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $40,000 at the end of each of the next 3 years. The opportunity requires an initial investment of $ 10,000 plus an additional investment at the end of the second year of $50,000. What is the NPV of this opportunity if the interest rate is2% per year? Should Marian take it?
Say that you want to establish a scholarship fund that will make fixed payments forever. To fund the scholarship, you plan to make 12 annual contributions of $9.9k to an investment account with an expected return of 6.0% interest annually. Your first contribution occurs today. If the scholarship fund makes its first payment two years following the last contribution, then what is the fixed annual payment that the scholarship fund will award? (Round to the nearest dollar)
Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $27,500, and Harold expects to spend about $600 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,900. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,575 per year, including maintenance. Assume a discount rate of 12 percent. Required: Calculate the net present value of Harold’s options. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Advise Harold about which option he should choose.
Bob is considering buying a small shop on Vancouver Island. He has found a small shop with a purchase price of $420,000. He will ieed to spend an additional $20,000 immediately for renovations and he plans to sell the business for $600,000 in 15 years. He estimates that his annual expenses will be $8,000 and he anticipates that his revenue will be S15,000 per year. Assume revenue occurs at the end of each vear and expenses occur at the beginning of each year. What is the initial cash flow CF0?
Paul and Donna Kelsch are planning a Mediterranean cruise in 5 years and will need $9,500 for the trip. They decide to set up a sinking fund" savings account for the vacation. They intend to make regular payments at the end of each 3-month period into the account that pays 8% interest compounded quarterly. What periodic sinking fund payment will allow them to achieve their vacation goal? Round your answer to the nearest cent. Do not round intermediate calculations.
Assume you won the state lottery and you are entitled to $5,000,000. If you choose not to take the money right away but wish to be paid weekly, you estimate that you will want to receive this cash flow over the next 10 years. How much will your weekly payment be at an interest rate of 5% ?

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