Exercise 24-7 (Algo) Net present value and unequal cash flows LO P3 Gomez is considering a $240,000 investment with the following net cash flows. Gomez requires a 12% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Net cash flows Year 1 $80,000 (a) Compute the net present value of this investment. (b) Should Gomez accept the investment? Required A Required B Year 2 $47,000 Complete this question by entering your answers in the tabs below. Should Gomez accept the investment? Should Gomez accept the investment? Year 3 Year 4 $100,000 $165,000 < Required A Required B Year 5 $56,000

Exercise 24-7 (Algo) Net present value and unequal cash flows LO P3 Gomez is considering a $240,000 investment with the following net cash flows. Gomez requires a 12% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Net cash flows Year 1 $80,000 (a) Compute the net present value of this investment. (b) Should Gomez accept the investment? Required A Required B Year 2 $47,000 Complete this question by entering your answers in the tabs below. Should Gomez accept the investment? Should Gomez accept the investment? Year 3 Year 4 $100,000 $165,000 < Required A Required B Year 5 $56,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Assume an investment is priced today at $5,000 and has the following income stream: Year Cash Flow 1 123 2 3 4 $ 1,000 - 2,000 3,000 3,000 Would an investor with a required rate of return of 15 percent be wise to invest at a price of $5,000? Multiple Choice No, because the investment has a net present value of - $1,139.15. No, because the investment has a net present value of - $1,954.91. Yes, because the investment has a net present value of $1,069.66. Yes, because the investment has a net present value of $1,954.91. An investor would be indifferent between purchasing and not purchasing the above investment at the stated price.
NPV: Basic Concepts Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000. Assume the cost of capital is 10 percent. The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Break the $810,000 future cash inflow into the three components shown below. Enter all your answers as positive amounts. a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. $ 136,350 ✓ 600,000 ✓ 60,000 ✓ 150,000 ✓ 3. Compute the NPV of the investment. When required, round your answer to the nearest dollar. $ Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV? Net present value represents the present value of future profits ✓
Question content area top Part 1 (Related to Checkpoint 6.6) (Present value of annuities and complex cash flows) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: Investment Alternatives End of Year A B C 1 $ 20,000 $ 20,000 2 20,000 3 20,000 4 20,000 5 20,000 $ 20,000 6 20,000 100,000 7 20,000 8 20,000 9 20,000 10 20,000 20,000 (Click on the icon in order to copy its contents into a spreadsheet.) Assuming an annual discount rate of 23 percent, find the present value of each investment. Question content area bottom Part 1 a. What is the present value of investment A at an annual discount rate of 23…
8. Assume a $90,000 investment and the following cash flows for two alternatives: Year 1 2 3 4 5 Investment Investment A B $25,000 30,000 25,000 19,000 25,000 $40,000 40,000 28,000 a. Calculate the payback for Investments A and B. b. If the inflow in the fifth year for Investment A was $25,000,000 instead of $25,000, would your answer change under the payback method?
Question content area top Part 1 (Related to Checkpoint 6.6) (Present value of annuities and complex cash flows) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: Investment Alternatives End of Year A B C 1 $ 14,000 $ 14,000 2 14,000 3 14,000 4 14,000 5 14,000 $ 14,000 6 14,000 70,000 7 14,000 8 14,000 9 14,000 10 14,000 14,000 (Click on the icon in order to copy its contents into a spreadsheet.) Assuming an annual discount rate of 15 percent, find the present value of each investment. Question content area bottom Part 1 a. What is the present value of investment A at an annual discount rate of 15 percent?…
The following are the cash flows of two projects: Year 2234O 0 1 Project A $ (380) 210 210 210 210 Project B $ (380) 280 280 280 If the opportunity cost of capital is 11%, what is the profitability index for each project? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Project A B Answer is complete but not entirely correct. Profitability Index 1.7145 X 1.8006
ed ok O t 1 ht 0 ences For the given cash flows, suppose the firm uses the NPV decision rule. Cash Flow Year 0 123 a. NPV b. NPV -$ 150,000 a. At a required return of 10 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. At a required re urn of 20 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 66,000 73,000 57,000
1.4 The table represents the cash flows received from the investments at the end year. Each investment requires an initial investment of $1000. Answer the questions related to the two investment opportunities in the table below. Year 1 2 3 4 5 Investment A 225 215 250 225 205 Investment B 220 225 250 250 210 There are two approaches to evaluate this investment. Show the necessary calculations. • Assume the interest rate ot 4.33%. Use present value analysis to determine which investment you should choose? Calculating the rate of returns of the investment, which investment would you choose and why?
Present value of annuities and complex cash flows) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: End of Year 1 2 3 45678 A $13,000 13,000 13,000 13,000 13,000 Investment B $13,000 13,000 13,000 13,000 C $ 18,000 54,000 a. What is the present value of investment A at an annual discount rate of 25 percent? (Round to the nearest cent.) b. What is the present value of investment B at an annual discount rate of 25 percent? (Round to the nearest cent.) c. What is the present value of investment C at an annual discount rate of 25 percent? (Round to the nearest cent.)
The following are the cash flows of two projects: Year 0 1 2 3 4 Project A $ (220) 100 100 100 100 Project B $ (220) 120 120 120 What are the internal rates of return on projects A and B? Note: Enter your answers as a percent rounded to 2 decimal places. Project A B IRR % %
ok ht ences A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year 0 1 2 3 Cash Flow IRR -$27,400 11,400 14,400 10,400 If the required return is 16 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Should the firm accept the project? Yes O No
What is the present value of an investment with the following cash flows? Year 1 $14,000 Year 2 $20, 000 Year 3 $30,000 Year 4. $ 43,000 Year 5. $ 57,000 Use a 7% discount rate, and round your answer to the nearest $1. a. $128, 487 b. $107, 328 c. $112, 346 d. $ 153, 272