Brett Collins is reviewing his company's investment in a cement plant. The company paid $11,500,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's desired rate of return for present value computations is 9 percent. Expected and actual cash flows follow: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Expected Actual Year 1 $2,980,000 2,443,600 Year 3 Year 2 Year 4 $4,090,000 $3,800,000 $4,130,900 2,535,800 4,104,000 3,222, 102 Year 5 $3,290,000 2,829,400 Required a.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment.
Brett Collins is reviewing his company's investment in a cement plant. The company paid $11,500,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's desired rate of return for present value computations is 9 percent. Expected and actual cash flows follow: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Expected Actual Year 1 $2,980,000 2,443,600 Year 3 Year 2 Year 4 $4,090,000 $3,800,000 $4,130,900 2,535,800 4,104,000 3,222, 102 Year 5 $3,290,000 2,829,400 Required a.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment.
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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Transcribed Image Text:Brett Collins is reviewing his company's investment in a cement plant. The company paid $11,500,000 five years ago to acquire the
plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original
expectations before he decides its fate. The company's desired rate of return for present value computations is 9 percent. Expected
and actual cash flows follow: (PV of $1 and PVA of $1)
Note: Use appropriate factor(s) from the tables provided.
Expected
Actual
Year 1
$2,980,000
2,443,600
Year 2
Year 3
Year 4
Year 5
$4,090,000 $3,800,000 $4,130,900 $3,290,000
2,535,800 4,104,000 3,222,102 2,829,400
Required
a.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment.
Note: Negative amounts should be indicated by a minus sign. Round your intermediate calculations and final answers to the
nearest whole dollar.
X Answer is complete but not entirely correct.
2,674,628 X
166,614 X
Net present value (expected)
Net present value (actual)
$
$
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