Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment Annual rate of return Pessimistic Most likely Optimistic Camera R Amount $5,000 20% 29% 31% Probability 1.00 0.29 0.39 0.32 Camera S Amount $5,000 16% 25% 30% Probability 1.00 0.23 0.55 0.22
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- Risk and probability Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R and S. Both should provide benefits over a 10-year period, and each requires an initial investment of $5,000. Management has constructed the following table of estimates of rates of return and probabilities for pessimistic, most likely, and optimistic results: LOADING... . a. Determine the range for the rate of return for each of the two cameras. b. Determine the value of the expected return for each camera. c. Which camera purchase is riskier? Why? a. The range for the rate of return for camera R is nothing%. (Round to the nearest whole number.) The range for the rate of return for camera S is nothing%. (Round to the nearest whole number.) b. The value of the expected return for camera R is nothing%. (Round to two decimal places.) The value of the expected return for camera S is nothing%. (Round to two decimal places.) c. Which camera purchase…Risk-adjusted rates of return using CAPM Centennial Catering, Inc., is considering two mutually exclusive investments. The company wishes to use a CAPM-type risk-adjusted discount rate (RADR) in its analysis. Centennial's managers believe that the appropriate market rate of return is 12.2%, and they observe that the current risk-free rate of return is 7.4%. Cash flows associated with the two projects are shown in the following table. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet) Initial investment (CFO) Year (f) 1 234 Project X $67,000 Project Y $84,000 Cash inflows (CF) $30,000 30,000 30,000 30,000 $26,000 32,000 42,000 48,000 a. Use a risk-adjusted discount rate approach to calculate the net present value of each project, given that project X has an RADR factor of 1.19 and project Y has an RADR factor of 1.39. The RADR factors are similar to project betas. (Hint: Use the following equation to calculate the required project return…Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. a. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $2,950,000 and will last 10 years. b. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $280,000. She estimates that the return from owning her own shop will be $45,000 per year. She estimates that the shop will have a useful life of 6 years. c. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a…
- 10) Which of the following two options for purchasing an equipment has a lower net present cost? Assume a discount rate of 0.05. (Hint: Use Excel for easier calculations.) a. Initial payment of $2000, then $550 monthly for4 months. b. Initial payment of $3000, then $200 monthly for 5 months. 11) Why should a higher discount rate be applied to an investment with a higher risk?Imagineering, Inc., is considering an investment in CAD-CAM compatible design software with the cash flow profile shown in the table below. Imagineering’s MARR is 18%/year. Solve, a. What is the future worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on future worth? c. Should Imagineering invest?The Umbrella company is planning to purchase a substance known as Serum A. Serum A would cost $45,000 and would have a useful life of 10 years with zero salvage value. The expected annual cash flow of the serum is $9,500. Management wants a 20% return on all investments. Use the provided present value tables for this question. If you use excel or a different table your answer will be marked incorrect by the quiz autograder. Required: 1. Compute the internal rate of return (IRR) for Serum X. Your answer should be in numberical form (DO NOT include the percentage sign) and will be enter as between two percentages o Between % % and 2. Should Umbrella company invest in Serum X based on it's required rate of return of 20%? Enter your answer as Yes or No.
- Consider the case of another company. Kim Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVS of $200,000. Management conducted a full risk analysis of these two projects, and the results are shown below. Risk Measure Standard deviation of project's expected NPVS Project beta Correlation coefficient of project cash flows (relative to the firm's existing projects) Which of the following statements about these projects' risk is correct? Check all that apply. Project B has more stand-alone risk than Project A. Project A has more corporate risk than Project B. Project A $80,000 1.2 0.7 Project B has more corporate risk than Project A. Project A has more market risk than Project B. Project B $40,000 1.0 0.9Home Innovations is evaluating a new product design. The estimated receipts and disbursements associated with the new product are shown below. MARR is 10%/yr. Solve, a. What is the external rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on external rate of return? c. Should Home Innovations pursue this new product?Imagineering, Inc., is considering an investment in CADCAM-compatible design software with the cash flow profile shown in the table below. Imagineering’s MARR is 18%/yr. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should Imagineering invest?
- Perform a financial analysis for an IT Project which requires an initial investment of $32,000, but it is expected to generate revenues of $10,000, $20,000 and $15,000 for the first, second and third years respectively. The target rate of return is 12%. Write the formula and calculate the Net Present Value (NPV). In addition, Justify your result. (For this question Write the answer on the paper and take photo and upload OR Type in the MS Word document and upload the file)The management of East Manufacturing needs a new high tech sorting machine and has two different proposals under consideration. They require a rate of return of 10% (discount rate) and the Accounting Department has prepared the following information: Initial Investment Useful Life of Equipment Net Annual Cash Flow Salvage Value Investment B: Click to open:↓ Ⓡ Clearly label and show calculations for full credit! No calculations = No credit. 1) Calculate the Payback Period for each option: Investment A: 2) Calculate the Net Present Value of each option: Investment A: $ 3,700,000 7 years $ 900,000 $0 Investment B: A $3,400,000 7 years $800,000 $90,000 BAlternate & Co is attempting to choose the best of two alternatives asset investment A and B, each requiring an initial investment of RM10000 and both having most likely, optimistic and pessimistic rate of return as shown in the table below. Calculate the following from the data given below. i. Expected rate of return for Asset A & B ii. Variance for Asset A & B iii. Standard deviation for Asset A & B iv. Coefficient of variation for Asset A & B v. Which of the asset is more risky? Asset A Asset B Initial Investment Rm10000 Annual rate of return RM10000 Annual rate of return Probability of this event occurring (2) 0.25 Possible outcomes (3) (5) (1) Pessimistic Most likely Optimistic 13% 7% 0.50 15% 15% 0.25 17% 23% 1.0