Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return oninvestment (ROI). which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that wouldrequire a $3.080,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is17%. The project would provide net operating income each year for five years as follows:$2, 700, ee01,100, e001,600, 800SalesVariable expensesContribution marginFixed expenses:Advertising, salaries, and other fixedout-of-pocket costsDepreciationTotal fixed expenses$ 620,000616, 0001,236, 800$ 364, 800Net operating incomeClick here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.Requlred:1. Compute the project's net present value.2 Compute the project's simple rate of return.3a. Would the company want Derrick to pursue this investment opportunity?3b. Would Derrick be inclined to pursue this investment opportunity?Complete this question by entering your answers in the tabs below.Req 1Reg 2Req 3AReq 38Compute the project's simple rate of return. (Round your answer to 1 decimal place i.e. 0.123 should be considered as12.3%.)Simple rate of return< Req 1Req 3A > Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return oninvestment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that wouldrequire a $3.080,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is17%. The project would provide net operating income each year for five years as follows:$2, 700, ee01,100, 000SalesVariable expensesContribution marginFixed expenses:Advertising, salaries, and other fixedout-of-pocket costsDepreciationTotal fixed expenses1,600, e00$ 620,000616,0001,236,000Net operating income$ 364, 000Click here to view Exhibit 12B-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables.Required:1. Compute the project's net present value.2 Compute the project's simple rate of return.3a. Would the company want Derrick to pursue this investment opportunity?3b. Would Derrick be inclined to pursue this investment opportunity?Complete this question by entering your answers in the tabs below.Reg 1Req 2Req 3AReq 38Compute the project's net present value. (Round your final answer to the nearest whole dollar amount.)Net present value< Reg 1Req 2 >

Net present value is present value of inflows i.e.present value of annual cash flows from the…

Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (RO), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that wo require a $3.080,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rat 17%. The project would provide net operating income each year for five years as follows: $2,700, eee 1,100, eee 1,60e, eee Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $ 628,800 616,000 1,236, 000 $ 364, 800 Net operating income Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the project's net present value. 2 Compute the project's simple rate of return.

Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (RO), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that wo require a $3.080,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rat 17%. The project would provide net operating income each year for five years as follows: $2,700, eee 1,100, eee 1,60e, eee Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $ 628,800 616,000 1,236, 000 $ 364, 800 Net operating income Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the project's net present value. 2 Compute the project's simple rate of return.

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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The first 3 parts of this question have been answered. Need help with the last two: 4.A. & 4.B
Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $4,650,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: $ 4,000,000 1,750,000 Sales Variable expenses Contribution margin Fixed expenses: 2,250,000 Advertising, salaries, and other fixed out-of-pocket costs Depreciation $745,000 745,000 Total fixed expenses 1,490,000 Net operating income $ 760,000
Jordan Corporation is considering a new product that will be very popular for a couple of years and then slowly lose its commercial appeal. Sales are projected to be $90,000 in year one, $100,000 in year two, $60,000 in year three, $40,000 in year four, $20,000 in year five, and $10,000 in the final year six. Expenses are expected to be 40% of sales with net working capital requirements to be 15% of the following time period’s revenue. Equipment of $126,000 will be required for the launch of the product; this equipment can be depreciated straight-line over six years and will be worthless at the end of the project. The Tax Rate is 20% and the opportunity cost of capital is 14.5%. What is the Internal Rate of Return (rounded to two places)? Multiple Choice 32.61% None of the above 13.39% 18.32% 19.46%
Rocky Pines golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $47,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways Fixed costs are projected to be $20,000,000 for the golfing season About 450,000 golfers are expected each year. Variable costs are about $20 per golfer Rocky Pines golf course has a favorable reputation in the area and therefore, has some control over the price of a round of golf. Using a cost-plus approach, what price should the course charge for a round of golf? (Round the final answer to the nearest cent) OA $110.00 OB$76.98 OC $20.00 OD 564 44
Cardinal Company is considering a five-year project that would require a $3,025,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 16 %. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: $ 2,737,000 1,001,000 1,736,000 Advertising, salaries, and other fixed out- of-pocket costs $ 610,000 605,000 Depreciation Total fixed expenses 1,215,000 Net operating income $ 521,000 Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using table. Foundational 12-13 (Algo) 13. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the project's actual net present value? (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to the…
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. After careful study, Oakmont estimated the following costs and revenues for the new product: When the project concludes in four years the working capital will be released for investment elsewhere within the company. Required: Using Excel (this will save you time and effort) answer the following: Oakmont’s cost of capital is 15%, and management does not feel it should have any adjustment for risk, compute the NPV. Same situation as (a), but management does feel this project does possess a greater than average risk, so 19% should be the required rate of return. Compute the NPV. Management is concerned that Sales Revenues and Expenses could be rising due to inflationary factors. So the projection for year 1 is as shown, but that sales revenues will grow by 2% per year for years 2-4; and that variable expenses will grow by 4% per year for years 2-4, and that fixed out-of-pocket operating…
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,800,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 18%. The project would provide net operating income each year for five years a follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income. EXHIBIT 7B-1 Present Value of $1; Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What is the project's net present value? 2. What is the project's internal rate of return to the nearest whole percent? 3. What is the project's simple rate of return? 4-a. Would…
Monica is a senior financial manager of Eclipse Ltd. She is conducting a capital budgeting analysis on a new product. She has already authorised an extensive market research on the marketability of the product that cost $15,000, which she paid yesterday. The new project is expected to generate yearly revenue of $390,000 for 4 years. The related variable costs are expected to be $100,000 p.a. and Monica estimates the relevant fixed costs would be another $30,000 p.a. The project will require the company to purchase new equipment at a cost of $500,000. The new equipment will be installed in a building which the company already owns but the building is currently left vacant. The company will depreciate the equipment by the straight-line method to zero salvage value over the 4 years and Monica believes that they can sell the equipment at the end of 4 years for $20,000. Eclipse Ltd’s required payback is 3 years and the required rate of return is 12% p.a. The relevant tax rate is 30% and tax…
Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $5,170,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 19%. The project would provide net operating income each year for five years as follows: Sales $ 4,500,000 Variable expenses 2,000,000 Contribution margin 2, 500,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $780,000 Depreciation 1,034,000 Total fixed expenses 1,814,000 Net operating income $ 686,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return. 3 a. Would the company want Derrick to pursue…
K- Yoga, Spa, and Swim Club is planning for the coming year. Investors would like to eam a 10% rebum on the company's $39,000,000 of assets. The company primarily incurs fixed costs maintain the swimming pools, Fixed costs are projected to be $12,600,000 for the year. About 520,000 members are expected to swim each year. Variable costs are about $10 per swimmer. The club is a price-taker and won't be able to charge more than its competitors who charge $38 for a membership. What profit (loss) will it earn in terms of dollars? OA $12,600,000 OB. $1,900,000 OC. $7,919,962 OD. $(1,960,000)
Hawk, Inc. has a 15% required rate of return. Three divisions of Hawk have proposed three projects to increase income over the next 12 years. Three divisions report different measures as follows: Project A was reported to have an NPV of ($530) or negative $530. Project was reported with an internal rate of return of 18%. Project C was reported to have a payback period of 15 years. With which of these projects should Hawk move forward? O All three sound great! O Project A O Project C O Project B
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 24% each of the last three years. Casey is considering a capital budgeting project that would require a $4,450,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 20%. The project would provide net operating income each year for five years as follows: $ 4,300,000 1,960,000 2,340,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $ 790,000 890,000 1,680,000 660,000 Net operating income

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