Capital Budgeting (NPV)YearCash Flows-5,9691,5161,6561,7382.094Currently, the investor's required rate ofreturn4.7%Please compute the project's NPV (hint: it is positive).What if interest rates in the broad economy went up.and also the firm became riskier? Investors wouldrequire a higher rate of return.1. Suppose the required rate increases 2%.How much would the NPV drop?A Between 200 and 270B Between 270 and 280C Between 280 and 290D Between 290 and 300

Net present value (NPV) is the difference between the present value of cash inflows and the present…

Answered: Capital Budgeting (NPV) Year Cash Flows…

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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Liability Driven Investing (LDI) Strategies (Continued) Example: Market value of assets is $160 million and present value of liabilities is $200 million. The modified duration of assets is 3, and the modified duration of liabilities is 4. (1) Compute the funding gap and the funding gap ratio (2) What is the funding gap interest-rate risk? (3) What will be the funding gap and the funding gap ratio if yields increase by 100 basis points? (4) How do we relate answers from questions (1) to (3)?
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Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow: −$7,100 $1,000 $2,200 $1,400 $1,400 $1,200 $1,000 Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Should it be accepted or rejected?multiple choice accepted rejected
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Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$ 225,000 $ 64,800 $ 83,000 $ 140,000 $ 121,000 $ 80,200 Use the IRR decision rule to evaluate this project. Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
A firm wants to start a project. A team of financial analysts estimated the following cash flows year cash flow 0 -$100,000 1 55,000 2 43,000 3 45,000 Suppose that the discount rate (interest rate) is 12%. The profitability index (PI) is Group of answer choices 15,416.59 1.15 0.87 2.15
True or False Assume that the riskfree rate of return is 5% p.a. and that an investment project costs $150,000 and is expected to generate a risky net cash flow next year of $180,000. The project is acceptable as its internal rate of return exceeds the riskfree rate of return.
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Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$ 235,000 $ 65,800 $ 84,000 $ 141,000 $ 122,000 $ 81,200 Use the NPV decision rule to evaluate this project.
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$356,000 $65,700 $83,900 $140,900 $121,900 $81,100 Use the NPV decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Should it be accepted or rejected?multiple choice accepted rejected
Capital Budgeting (NPV) Year Cash Flows -5.969 1,516 2 1,656 3 1,738 2.094 Currently, the investor's required rate of return 4.7% Please compute the project's NPV (hint: it is positive). What if interest rates in the broad economy went up. and also the firm became riskier? Investors would require a higher rate of return. 1. Suppose the required rate increases 2%. How much would the NPV drop? A Between 200 and 270 B Between 270 and 280 C Between 280 and 290 D Between 290 and 300

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