Brett Collins is reviewing his company's investment in a cement plant. The company paid$15,000,000 five years ago to acquire the plant. Now top management is considering anopportunity to sell it. The president wants to know whether the plant has met originalexpectations before he decides its fate. The company's desired rate of return for presentvalue computations is 12 percent. Expected and actual cash flows follow: (PV of $1 and PVA of$1)Note: Use appropriate factor(s) from the tables provided.Year 1Year 2Year 3Year 4Year 5Expected $3,350,000 $4,970,000 $4,600,000 $5,040,000$4,210,000Actual 2,620,000 2,970,000 4,870,000 3,850,000 3,530,000Requireda.&b. Compute the net present value of the expected and actual cash flows as of thebeginning of the investment.Note: Negative amounts should be indicated by a minus sign. Round your intermediatecalculations and final answers to the nearest whole dollar.

NET PRESENT VALUE = PV of CASH inflows - PV of CASH outflows i ii iii iv=i*iiiv=ii*iiiPresent ValuePresent valueYear Expected Actual PVIF @ 12% Expected Actual 0-15,000,000-15,000,0001-15,000,000-15,000,00013,350,0002,620,0000.892852,991,047.52,339,26724,970,0002,970,0000.797193,962,034.32,367,654.334,600,0004,870,0000.711783,274,1883,466,368.645,040,0003,850,0000.635513,202,970.42,446,713.554,210,0003,530,0000.567422,388,838.22,002,992.6Totals 819078.4-2377004NET PRESENT VALUE of Expected Returns= PV of CASH inflows - PV of CASH outflows =15,819,078.40- 15,000,000 =819,078.4NET PRESENT VALUE of Actual Returns= PV of CASH inflows - PV of CASH outflows =12,622,996-15,000,000 =-2,377,004

Business

Finance

$15,000,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's desired rate of return for present value computations is 12 percent. Expected and actual cash flows follow: (PV of $1 and P $1) Note: Use appropriate factor(s) from the tables provided. Year 1 Year 2 Year 3 Year 4 Year 5 Expected $3,350,000 $4,970,000 $4,600,000 $5,040,000 $4,210,000 Actual 2,620,000 2,970,000 4,870,000 3,850,000 3,530,000

$15,000,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's desired rate of return for present value computations is 12 percent. Expected and actual cash flows follow: (PV of $1 and P $1) Note: Use appropriate factor(s) from the tables provided. Year 1 Year 2 Year 3 Year 4 Year 5 Expected $3,350,000 $4,970,000 $4,600,000 $5,040,000 $4,210,000 Actual 2,620,000 2,970,000 4,870,000 3,850,000 3,530,000

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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Rubash Company is considering a project that has the following cash flow and WACC data. What is the project's MIRR? WACC = 9% Year: 0 1 2 3 Cash flows: - $1,500 $400 $525 $940 a. 8.00% b 8.45% c. 8.75% d. 9.33% e. 9.83%
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Mendez Company has identified an investment project with the following cash flows. Year Cash Flow 1 2 3 $780 1,050 1,310 1,425 a. If the discount rate is 8 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value at 17 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the present value at 25 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Present value at 8% b. Present value at 17% c. Present value at 25%

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