Charge Car P/L is considering a project to launch charging stations for electric cars around Australia. Theinitial investment is expected to be $100,000,000 and the term of the project is 6 years. The required rate ofreturn from the project is 14% p.a. The annual cash flows are outlined in the following table:End of yearYear 1Year 2Cash flow p.a. (Sm)2022Year 32530Year 4Year 5Year 63437Based on Charge Car's required rate of return would you recommend proceeding with thisinvestment? Present all calculations to support your answerirn inenth tha.b. Would you change your opinion if Charge Car's required rate of return increased to 16% pa? Presentall calculations to support your answer

Net Present Value is the difference between the present value of cash inflows and cash outflows. A…

Answered: Charge Car P/L is considering a project…

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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Jack Sprat Inc. wants to know if they invest 11,548 in new exercise equipment, plus $2.000 for installation. how long before they will receive their initial invest back from future cash flows? What is the payback period for the initial costs? Projected Cash flows Year 1: 5,000 Year 2: 7,000 Year 3: 4,000 Year 4: 1,000 Post your answer as number of years with 2 decimal places, for example 5.55
Snowflake Resorts is considering investing in a project that has a net investment of $240,000. This project will return positive net cash flows annually for the next 5 years of $80,000 per year. Snowflake Resorts requires a 12% return on all of its investments. The payback period of this investment is ________ years 5 3 4 2 The net present value of this project is $65,355 $48,384 $85,652 $57,635 The profitability index of this project is 2016 5924 7350 3852 When projects have scale differences, only the Net Present Value method will rank the projects correctly True False Fees paid to investment bankers and lawyers for issuing securities are called Component costs Issuance costs Security costs Licensing costs Purposes for considering a capital project may include which of the following Cost reductions Growth projects Government required projects All of the above When the weighted average cost of capital for a project is considered on an after tax…
c. A company is planning to invest in a project over a 5-year period, but wants to know its financial implications. It expects the cash in-flow return on the investment to steadily increase over the 5 years. Using the information below, help determine the Total Net Cash Flows, the Net Present Value and the estimated Payback Period. Note: Estimate the payback period to the nearest year. Discount Rate 12% Investment Project Cash Flow Total Net Cash Flow Initial Investment $ (5,000) ? Year 1 $ 800 ? Year 2 $ 900 ? Year 3 $ 1,500 ? Year 4 $ 1,800 ? Year 5 $ 3,200 ? NPV of investment ? Estimated Payback Period
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c. A company is planning to invest in a project over a 5-year period, but wants to know its financial implications. It expects the cash in-flow return on the investment to steadily increase over the 5 years. Using the information below, help determine the Total Net Cash Flows, the Net Present Value and the estimated Payback Period. Note: Estimate the payback period to the nearest year. Discount Rate 12% Investment Project Initial Investment Year 1 Year 2 Year 3 Year 4 Year 5 Cash Flow $ $ $ $ $ $ Total Net Cash Flow (5,000) 800 ? 900 ? 1,500 ? 1,800 ? 3,200 NPV of investment Estimated Payback Period
1. Google, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusively projects. Project Alpha requires an initial outlay of BD 24000; project Beta requires an initial outlay of BD44000. Using the expected cash inflows given for each project in the following table. Expected cash flow Year Project Alpha Project Beta 1 BD6000 BD19000 2 BD9000 BD6000 3 BD4000 BD4000 4 BD6000 BD13000 5 BD3500 BD5000 6 BD2000 BD4000 Required: 1. Determine the payback period of each project 2. Because they are mutually exclusive, Google must choose one. Which should the company invest in? 3. Explain why one of the projects is the better choice than the other
Myca Corp. has a project with the following cash flows. What is the value of the cash flows today assuming an annual interest rate of 9.4 percent? Year 1 2 3 4 Cash Flow $1,700 2,120 2,430 2,440
The total investment required for two projects are estimated at OMR90, 000. The cash flows expected from the two projects for the first four years are explained in the table below. Year Project A Year 1 25,000 Year 2 38,500 Year 3 42,000 Year 4 48,000 What will be pay back period? a. 3.03 O b. 3.23 O c. 2.86 O d. All the options are wrong e. 2.63
Raisons Reels Pty Ltd is considering investing in the purchase of new equipment The equipment will cost $350 000 There will be net cash inflows in each of the three years of: Year 1: $140 000, Year 2: $160 000 and Year 3: $122 000 The equipment is thought to have a residual value of $60 000 at the end of year 3 The required rate of return (RRR) is 14% 4.The Accounting Rate of Return (ARR) for this investment is: 5. Which of the following statements is true regarding the decision rule for ARR? 6. A qualitative feature of investments is:
What is the expected operating cash flow for year 2 of a project given the following information. To undertake the project, $321,000 must be spent on new equipment. The equipment has an expected life of 7 years and will be depreciated straight- line over that same period to a book value of 0. New annual sales of $211,000 are expected (expected sales are the same each year). Cost of goods sold are projected to be 44% of sales, Fixed cash operating expenses are $46,000 per year. Tax rate is 26%, in the event EBIT is negative, the firm would have a tax credit based on the 26% tax rate. O a. 78385.51 Ob. 65321.26 Oe. 64862.69 Od. 68135.92 O e. 82304.78 Of. 54216.64
The total investment required for a project are estimated at RO 100,000. The cash flows expected from the projects for the first five years are explained in the table below. Year Project A Year 1 20000 Year 2 30000 Year 3 35000 Year 4 40000 Year 5 25000 Calculate the payback period

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