Bob has the option of undertaking one of two investment projects, each of which requires an initial investment outlay of $2,500. Payouts to each project are realized at the end of years 1, 2 and 3, and are shown in the table below. Year 2 1,000 1,000 Year 1 Year 3 Project 1 Project 2 1,000 600 1,000 1,475 a. Bob can finance either of these investments at a rate of 2% per annum. Is either of the investments profitable? If so, which project will he undertake? Explain. b. The rate of interest rises to 10%. How does this affect Bob's choice? Explain. c. Generally speaking, how does an increase in interest rates affect the desirability of undertaking projects whose returns are enjoyed much further into the future? Explain.

Bob has the option of undertaking one of two investment projects, each of which requires an initial investment outlay of $2,500. Payouts to each project are realized at the end of years 1, 2 and 3, and are shown in the table below. Year 2 1,000 1,000 Year 1 Year 3 Project 1 Project 2 1,000 600 1,000 1,475 a. Bob can finance either of these investments at a rate of 2% per annum. Is either of the investments profitable? If so, which project will he undertake? Explain. b. The rate of interest rises to 10%. How does this affect Bob's choice? Explain. c. Generally speaking, how does an increase in interest rates affect the desirability of undertaking projects whose returns are enjoyed much further into the future? Explain.

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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You can use machine A with an initial investment of $1,000 and a maintenance cost of $7,980 annually for the next five years. Alternatively, you can purchase machine B for $12,000 initial cost today, plus $5,000 annual maintenance with the same 5 years life. At a cost of capital of 15%, you should: Show your Work A. Use machine A and save $600 in equivalent annual annuity. B. Use machine A and save $302 in equivalent annual annuity. C. Use the machine B and save $596 in equivalent annual annuity. D. Buy the machine C and save $600 in equivalent annual annuity. E. Buy machine B and save $596 in equivalent annual annuity.
A person has Php200,000.00 which he plan to put in an investment for 3 years. He is choosing between two investments. Investment A credits 5% interest compounded monthly, while investment B credits 5.3% interest compounded quarterly. Which investment is better?
company is considering three independent projects for October 2021. The three projects are project X, project Y and project Z. Given the following cash flow information, calculate the payback period for each. If the company requires a 3-year payback before an investment can be made, which project(s) would be accepted? Year Project X ($) Project Y ($) Project Z ($) O (Investment) -2,000 -$10,000 -$5,000 1. -2,000 -6,000 -2,000 800 4,000 5,000 3 600 3,000 5,000 4 600 2,000 5,000 400 2,000 2,000
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Please provide step by step solution for both the questions.
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An investor pays P1,100,000 for a mine which will yield a net income of P200,000 at the end of each year for 10 years and then will become useless. He accumulates a replacement fund to recover his capital by annual investments at 4.5%. At what rate (%) does he receive interest on his investment at the end of each year?
(a) Cheyenne Inc. has $470,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $70,044 at the end of each year for 10 years, and the other is to receive a single lump-sum payment of $1,459,750 at the end of the 10 years. Which alternative should Cheyenne select? Assume the interest rate is constant over the entire investment. eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer
NPV ProfileThe figure below shows the NPV profile for two investment projects.Refer to NPV Profile. Suppose the two projects require about the same initial investment. Which project generates more cash flows in the early years? Group of answer choices There is no difference between the two projects Project 2 Project 1 Cannot tell from the given information
A borrower bought a house for $300,000; he can obtain an 80% loan with a 20-year fully amortizing, 7% interest rate and monthly payment. Alternatively, he could get a 30-year fully amortizing 90% loan at 9% What is the incremental cost of borrowing the additional fund?
Question 5 Collateral is a valuable asset that is pledged to ensure loan payments. If you fail to repay the loan, the creditor may take your pledged asset. True False

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