Investment Option "South" This potential investment is less risky and shorter term, so it has a minimum rate of return of 5.70%. This investment would require an initial outlay of cash of $148,000, and at the end of the 5-year life of this investment FSW Corporation is expected to have to pay a wind-down cost of $7,400. For the first 4 years of this investment, net annual cash inflows are expected to be $46,000 and for the last year of the investment, the net annual cash inflow is expected to be $115,000. 6. How much is the present value of the purchase of equipment? 7. How much is the present value of the wind-down cost? 8. How much is the present value of the annual cash inflows for the first 4 years? 9. How much is the present value of the annual cash inflow for the final year of this investment? 10. How much is the Net Present Value? 11. What is the Internal Rate of Return? (round to the nearest hundredths place/input code: 0.00) $ $ %
Investment Option "South" This potential investment is less risky and shorter term, so it has a minimum rate of return of 5.70%. This investment would require an initial outlay of cash of $148,000, and at the end of the 5-year life of this investment FSW Corporation is expected to have to pay a wind-down cost of $7,400. For the first 4 years of this investment, net annual cash inflows are expected to be $46,000 and for the last year of the investment, the net annual cash inflow is expected to be $115,000. 6. How much is the present value of the purchase of equipment? 7. How much is the present value of the wind-down cost? 8. How much is the present value of the annual cash inflows for the first 4 years? 9. How much is the present value of the annual cash inflow for the final year of this investment? 10. How much is the Net Present Value? 11. What is the Internal Rate of Return? (round to the nearest hundredths place/input code: 0.00) $ $ %
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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Question
Transcribed Image Text:Investment Option "South"
€
This potential investment is less risky and shorter term, so it has a minimum rate of return of
5.70%. This investment would require an initial outlay of cash of $148,000, and at the end of the
5-year life of this investment FSW Corporation is expected to have to pay a wind-down cost of
$7,400. For the first 4 years of this investment, net annual cash inflows are expected to be
$46,000 and for the last year of the investment, the net annual cash inflow is expected to be
$115,000.
6. How much is the present
value of the purchase of
equipment?
7. How much is the present
value of the wind-down cost?
8. How much is the present
value of the annual cash
inflows for the first 4 years?
9. How much is the present
value of the annual cash
inflow for the final year of this
investment?
10. How much is the Net
Present Value?
11. What is the Internal Rate
of Return? (round to the
nearest hundredths
place/input code: 0.00)
+A
$
$
%
Expert Solution
Step 1: Explain Present value
Present value is the current value of all future cash flows being discounted at a predefined rate of interest for a specific period of time.
NPV is the profitability determination techniques in capital budgeting. Initial investment is deducted from the present value of all future cash flows, and the result is known as NPV. Project with highest NPV is selected.
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