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
Related questions
Question
Transcribed Image Text:# Investment Analysis Exercise
This exercise involves tasks related to computing the average rate of return and net present value (NPV) for proposed investments. Below is a detailed transcription of the provided worksheet.
## Present Value of $1 Table
This table shows the present value of $1 for various years and interest rates:
| Year | 4% | 5% | 6% | 7% |
|------|-------|-------|-------|-------|
| 1 | 0.962 | 0.952 | 0.943 | 0.935 |
| 2 | 0.925 | 0.907 | 0.890 | 0.873 |
| 3 | 0.889 | 0.864 | 0.840 | 0.816 |
| 4 | 0.855 | 0.823 | 0.792 | 0.763 |
| 5 | 0.822 | 0.784 | 0.747 | 0.713 |
| 6 | 0.790 | 0.746 | 0.705 | 0.666 |
| 7 | 0.760 | 0.711 | 0.665 | 0.623 |
| 8 | 0.731 | 0.677 | 0.627 | 0.582 |
| 9 | 0.703 | 0.645 | 0.592 | 0.544 |
|10 | 0.676 | 0.614 | 0.558 | 0.508 |
## Required Tasks:
### 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.
**Average Rate of Return:**
- **Warehouse:** `______ %`
- **Tracking Technology:** `______ %`
### 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value (NPV).
**Warehouse:**
- Present value of net cash flow total: `$ _______`
- Less amount to be invested: `$ _______`
- Net present value: `$ _______`
**Tracking Technology:**
- Present value of net cash flow total: `$ _______`
-
Transcribed Image Text:### Capital Investment Analysis for Ellis Transport and Storage Inc.
**Overview:**
The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects: Warehouse and Tracking Technology. This analysis provides estimated income from operations and net cash flows for both investments over five years.
**Investment Projections:**
**Warehouse Investment:**
| Year | Income from Operations | Net Cash Flow |
|------|------------------------|---------------|
| 1 | $60,000 | $187,000 |
| 2 | $60,000 | $187,000 |
| 3 | $60,000 | $187,000 |
| 4 | $60,000 | $187,000 |
| 5 | $60,000 | $187,000 |
|**Total**| **$300,000** | **$935,000** |
**Tracking Technology Investment:**
| Year | Income from Operations | Net Cash Flow |
|------|------------------------|---------------|
| 1 | $126,000 | $299,000 |
| 2 | $96,000 | $252,000 |
| 3 | $48,000 | $178,000 |
| 4 | $21,000 | $122,000 |
| 5 | $9,000 | $84,000 |
|**Total**| **$300,000** | **$935,000** |
Each project requires an initial investment of $600,000. Straight-line depreciation will be applied, and no residual value is expected at the end of the investment period. The committee has chosen a discount rate of 12% for net present value analysis.
**Present Value of $1 at Compound Interest:**
This table assists in calculating the present value of future cash flows, given various interest rates from 6% to 20%.
| Year | 6% | 10% | 12% | 15% | 20% |
|------|------|------|------|------|------|
| 1 | 0.943| 0.909| 0.893| 0.870| 0.833|
| 2 | 0.890| 0.826| 0.797|
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 7 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education