Information for two alternative projects involving machinery investments follows. Project 1 requires an initial investment of $129,500.Project 2 requires an initial investment of $95,40Q. Assume the company requires a 10% rate of return on its investments.Annual AnountsSales of new productExpensesHaterials, labor, and overhead (except dapreciation)Depreciation-MachinerySelling, general, and administrative expensesProject 2$ 81,000Project 1$ 103,50068,90018,500,48033,92019,08021,200$ 6,800Income$7,620Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net presentvalues should be indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearestwhole dollar.)Present ValueNet Cash Flowsx of Annulty at10%Present Value ofNet Cash FlowsProject 1Years 1-7Net present valuePresent Valueof Annulty at10%Project 2Present Value ofNet Cash FlowsNet Cash Flowrs xYears 1-5Net present value

Capital budgeting is the process by which a corporation examines potential large projects or…

Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net presem values should be indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar.) Project 1 Present Value Net Cash Flows x of Annulty at Present Value of Net Cash Flows 10% Years 1-7 Net present value Present Value of Annulty at 10% Present Value of Net Cash Flows Project 2 Net Cash Flowsx Years 1-5 Net present value

Compute the net present value of each potential investment. Use 7 years for Project 1 and 5 years for Project 2. (Negative net presem values should be indicated with a minus sign. Round your present value factor to 4 decimals. Round your answers to the nearest whole dollar.) Project 1 Present Value Net Cash Flows x of Annulty at Present Value of Net Cash Flows 10% Years 1-7 Net present value Present Value of Annulty at 10% Present Value of Net Cash Flows Project 2 Net Cash Flowsx Years 1-5 Net present value

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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PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $150 at the end of each of the next 3 years, $250 at the end of Year 4, $350 at the end of Year 5, and $550 at the end of Year 6. a. If other investments of equal risk earn 10% annually, what is its present value? Round your answer to the nearest cent. $ b. If other investments of equal risk earn 10% annually, what is its future value? Round your answer to the nearest cent. $
d. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 12%. Round to the nearest dollar.Annual Net Cash Flow fill in the blank 1 of 1$
Consider the following two projects with cash flows in $: Project Year 0 Year 1 Year Year 3 Year 4 Discount Rate A - 100 40 50 60 n/a 0.15 B -73 30 30 30 30 0.15 For Project A, after two years, the project has been paid off for $90 out of $100. To find out the fraction of the third year, we take the $10 yet to be paid and divide it by $60, which is $10/$60 = 0.167. Therefore, the payback period for Project A is 2.167 years. Following the same logic, calculate the payback period for Project B.
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
Compute the payback statistic for Project A if the appropriate cost of capital is 7 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time: 0 1 2 3 4 5 Cash flow: −$2,300 $870 $870 $780 $560 $360
the project's net cash flow is listed as follows. Please calculate its simple payback period and discounted payback period (i=10%). End of 2 3 4 1 5 Year $12 $11 $10 $10 $9, ,00 ,00 ,00 Net -$4 Cash 2,00 ,00 00 Flow
Compute the payback statistic for Project A if the appropriate cost of capital is 9 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time: 0 1 2 3 4 5 Cash flow: −$2,100 $790 $810 $740 $520 $320 Payback: ? Years
A project has estimated annual cash flows of $95,000 for 4 years and is estimated to cost $260,000. Assume a minimum acceptable rate of return of 10%. Following is a table for the present value of $1 at compound interest: Year 6% 10% 12% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567 Following is a table for the present value of an annuity of $1 at compound interest: Year 6% 10% 12% 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605 a. Determine the net present value of the project.b.
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
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$425,000 44,000 62,000 79,000 540,000 -$40,000 20,400 13,300 18,600 15,400 2 4 The required return on these investments is 10 percent. a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) e. Based on your answers in (a) through (d), which project will you finally choose? a. Project A Project B b. Project A Project B c. Project A years years % Project B % d. Project A…
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
Nikul

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