Exercise 10-5A (Algo) Determining net present value LO 10-2 Rundle Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans' combined purchase price is $99,000. The expected life an salvage value of each are five years and $20,500, respectively. Rundle has an average cost of capital 14 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places. b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? b. Should the investment opportunity be accepted?

Exercise 10-5A (Algo) Determining net present value LO 10-2 Rundle Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans' combined purchase price is $99,000. The expected life an salvage value of each are five years and $20,500, respectively. Rundle has an average cost of capital 14 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places. b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? b. Should the investment opportunity be accepted?

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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Problem 10.12 Hathaway, Inc., a resort company, is refurbishing one of its hotels at a cost of $7,188,472. Management expects that this will lead to aditional cash flows of $1,692,339 for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Hathway go ahead with this project? (Round answer to 2 decimal places, e.g. 5.25%.) The IRR of this project is The firm should the project Click if you wol reject Show Work for this question: Open Show Work аcсept
Question 10.2 Shooting Star, Inc. is considering a project that would have an eight -year life and would require a $2,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows: Sales $2,000,000 Less: Variable Expenses $1,600,000 Contribution Margin $400,000 Less: Fixed Expenses $200,000 Net Income $200,000 All of the above items, except for depreciation of $200,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 10%. (Ignore income taxes in this problem.) Required: What is the project's net present value? What is the project's internal rate of return? What is the project's payback period? What is the project's simple rate of…
Question 1 The M&N company is considering a new manufacturing facility plan for its new venture. The plan suggests an initial investment of 5600.000 and is expected to have a salvage value of $50,000 after the end of its 6-year life period. The selling price of the product is decided fo be $70 per unit, against an estimated variable cost of $40 per unit. How many units should the company sell each year for breakaven at an interest rate of 8%?
FIN 6020 v19f CJ Lance Co. (Ch 10) CJ Lance Co. is considering two Mutually Exclusive Projects Project Alpha-1 is expected to generate cash flows of $3,250 each year of its 5 year life. The project will cost $11,000. Project Beta-2 is expected to produce $8,000 in cash flows per year. It also has a 5 year life, and costs $27,750. The Cost of Capital is 12% and these projects are of normal risk. a. Calculate the NPV, IRR, and MIRR for each of the projects. а. b. Given that they are mutually exclusive, which project should be selected based on each ranking method? С. Now which project should be chosen? Why?
QUESTION 10 A project will produce operating cash flows of $57,000 a year for 3 years. During the life of the project, inventory will be lowered by $10,000 and accounts receivable will increase by $20,000. Accounts payable will decrease by $5,000. The project requires the purchase of equipment at an initial cost of $90,000. The equipment will be salvaged at the end of the project creating a $17,000 after-tax cash inflow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 12%? $48,772.08 $54,681.35 $56,209.19 $42,908.17 $44,141.41
QUESTION 4 Max Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $58540. The equipment will have an initial cost of $190150 and have a 5-year life. The salvage value of the equipment is estimated to be $23100. Factors to use for n=5, 1=10% (DO NOT USE ANY OTHER FACTORS OR EQUATIONS) Present Value of an Annuity of $1 Present Value of $1 3.7908 0.6209 6.1051 1.6105 Future Value of an Annuity of $1 Future Value of $1 If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes.
Question 5 Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186,000 $195,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 86 000 93 000 83 000 75 000 55 000 97 000 84 000 86 000 75 000 63 000 Required: Identify which option of equipment should the company accept based on Profitability Index? Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
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