Determine the present value, assuming that John desires a 10% rate of return on this investment. (Assume that all cash flows occur at the end of the year.) (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
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John Wiggins is considering the purchase of a small restaurant. The purchase price listed by the seller is $920,000. John has used past financial information to estimate that the net
| Years | Amount | |||
| 1-6 | $ | 92,000 | ||
| 7 | 82,000 | |||
| 8 | 72,000 | |||
| 9 | 62,000 | |||
| 10 | 52,000 | |||
If purchased, the restaurant would be held for 10 years and then sold for an estimated $820,000.
Required:
Determine the present value, assuming that John desires a 10% rate of
Given information is:
Cash outflow = $920,000
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- Zenith Investment Company is considering the purchase of an office property. It has done an extensive market analysis and has estimated that based on current market supply or demand relationships, rents, and its estimate of operating expenses, annual NOI will be as follows: Year NOI 1 $ 1,030,000 2 1,030,000 3 1,030,000 4 1,210,000 5 1,260,000 6 1,310,000 7 1,349,000 8 1,389,170 A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,030,000. During years 4, 5, and 6, market rents are expected to be higher. It is further expected that beginning in year 7 and every year thereafter, NOI will tend to reflect a stable, balanced market and should grow at 3 percent per year indefinitely. Zenith believes that investors should earn a 12 percent return (r) on an investment of this kind.Required: a. Assuming that the investment is expected to produce NOI in years 1 to 8 and is expected to be owned for…A soap manufacturing company is considering to diversify into alcohol business. It has decidedtoto set up an alcohol plant at a total cost of GHS 200 m. The project is to be financed as below:EquityGHS 75m12% DebtGHS 125mThe managing director of the company has asked the finance director to estimate the net presentvalue of the alcohol business using the discounted cash flow method. The finance director wasfacing problem in estimating cost of equity for the alcohol business. He collected informationwith respect to the beta (market risk) of a comparable alcohol company and found 0.90.However, the proposed alcohol company will be riskier than existing comparable firm since it will be highly levered. Thus, market risk of the proposed alcohol company will be 80% higherthan the existing comparable alcohol company. Requireda. Aid the finance director to estimate the cost of equity and hence the WACC for theproposed alcohol company. The tax rate for the companies is 35%. Use a risk-free…You have entered into an agreement for the purchase of land. The agreement specifies that you will take ownership of the land immediately. You have agreed to pay $50,000 today and another $50,000 in three years. Calculate the total cost of the land today, assuming a discount rate of (a) 5%, (b) 7 %, or (c) 9%. Note: Use tables, Excel, or a financial calculator. Round your answers to 2 decimal places. (FV of $1, PV of $1, FVA of $1, and PVA of $1) a. b. C. Payment Amount $ 50,000 50,000 50,000 Interest Rate 7 5% 7% 9% Answer is complete but not entirely correct. Compounding Annually Annually Annually Period Due 3 years 3 years 3 years $ Total Cost of Land Today 93,121.25 X 90,816.30✔ 88,617.30
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- Sun Coast Tours is considering purchasing a new boat for use in its tour business. Relevant information concerning the boat is as follows: (Ignore income taxes.) Purchase cost Annual net cash inflows that will be provided by the boat Life of the boat Required: 1-a. Compute the payback period for the boat. (Round your answer to 1 decimal place.) Payback period Yes O No 1-b. If the company rejects all proposals with a payback period of more than five years, will the boat be purchased? year(s) Simple rate of return $232,000 $ 55,000 2-a. Compute the simple rate of return on the boat. Use straight-line depreciation based on the boat's useful life, assuming $13,600 salvage value. (Round your answer to 1 decimal place.) Yes % 2-b. Will the boat be purchased if the company's required rate of return is 14%? 14 yearsThe owner of Adolla Bar and Restaurant is considering expanding the business. He is choosing between two alternatives: (1) build a new restaurant, or (2) buy and renovate an old building. The projected cash flows from these two alternatives are as follows: Build Buy and renovate Initial cash outflow (Year 0) 332,000 215,000 Cash inflows (Years 1 to 10) 46,000 39,500 Cash inflows (Years 11 to 20) 46,000 - The required rate of return is 9%. Ignore tax impacts. Required: Calculate the following for the projects: Payback period Accounting rate of return using (i) initial investment and (ii) average investment as the denominator Net present value Internal rate of returnNet Present Value Use Exhibit 128.1 and Exhibit 128.2 to locate the present value of an annuity of $1, which is the amount to be multiplied times the future annual cash flow amount. 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 $2,650,000 and will lam 10 years. b. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $180,000. She estimates that the return from owning her own sta will be $35,000 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.…
