Just because a project's payback period is relatively long doesn't mean it is not profitable in the long run. Consider an investment in LED lights with a price tag of $236,000. The estimated annual savings in electricity and routine maintenance is $39,500 and the life of the LED lights is 18 years. Assume that the payback period of three years or less is desired by the investor. a. What is the simple payback period for the lights? b. What is the IRR of this investment? c. What do you conclude from Part (a) and Part (b)? a. The simple payback period is years. (Round to one decimal place.)

Just because a project's payback period is relatively long doesn't mean it is not profitable in the long run. Consider an investment in LED lights with a price tag of $236,000. The estimated annual savings in electricity and routine maintenance is $39,500 and the life of the LED lights is 18 years. Assume that the payback period of three years or less is desired by the investor. a. What is the simple payback period for the lights? b. What is the IRR of this investment? c. What do you conclude from Part (a) and Part (b)? a. The simple payback period is years. (Round to one decimal place.)

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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(Net present value calculation) Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $105,000 and will generate net cash inflows of $21,000 per year for 8 years. a. What is the project's NPV using a discount rate of 8 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 16 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not? a. If the discount rate is 8 percent, then the project's NPV is $ (Round to the nearest dollar.)
Need a little help with this one
You have just been offered a contract worth $1.03 million per year for 7 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 12.3%. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? The most you can pay for the equipment and achieve the 12.3% annual return is $ million. (Round to two decimal places.)
You have just been offered a contract worth $1.15 million per year for 6 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 12.1%. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? The most you can pay for the equipment and achieve the 12.1% annual return is $ million. (Round to two decimal places.)
Television is considering a project with an initial outlay of $X (you will have to determine this amount). It is expected that the project will produce a positive cash flow of $54,000 a year at the end of each year for the next 13 years. The appropriate discount rate for this project is 8 percent. If the project has an internal rate of return of 13 percent, what is the project's net present value? *** a. If the project has an internal rate of return of 13%, then the project's initial outlay is $ the nearest cent.) (Round to
1. Calvulate the internal rate of return(IRR) of each project and based on this criterion. Indicate which project you would recommend or acceptance.
You have just been offered a contract worth $1.02 million per year for 6 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 11.7% You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? CEED The most you can pay for the equipment and achieve the 11.7% annual return is $ million (Round to two decimal places)
What is the payback period on each of the above projects? Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? Why? If you use a cutoff period of three years, which projects would you accept? Why? If the opportunity cost of capital is 10%, which projects have positive NPVs? How do you know? “If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” Is this statement true or false? How do you know? If the firm uses the discounted-payback rule, will it accept any negative NPV projects? Will it turn down any positive NPV projects? How do you know?
(Net present value calculation) Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $90,000 and will generate net cash inflows of $20,000 per year for 11 years. a. What is the project's NPV using a discount rate of 9 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 14 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not? a. If the discount rate is 9 percent, then the project's NPV is $. (Round to the nearest dollar.)
An investment project requires an initial payment of $500,000, and then will earn a constant return of $45,000 every year forever. Is this a profitable investment project? Oyes, it is profitable O you can't tell with this information Ono, it is not profitable
YOU ARE A FINANCIAL ANALYST FOR A COMPANY THAT IS CONSIDERING A NEW PROJECT. IF THE PROJECT IS ACCEPTED, IT WILL USE A FRACTION OF A STORAGE FACILITY THAT THE COMPANY ALREADY OWNS BUT CURRENTLY DOES NOT USE. THE PROJECT IS EXPECTED TO LAST 10 YEARS, AND THE ANNUAL DISCOUNT RATE IS 10% (COMPOUNDED ANNUALLY). YOU RESEARCH THE POSSIBILITIES, AND FIND THAT THE ENTIRE STORAGE FACILITY CAN BE SOLD FOR €100,000 AND A SMALLER (BUT BIG ENOUGH) FACILITY CAN BE ACQUIRED FOR €40,000. THE BOOK VALUE OF THE EXISTING FACILITY IS €60,000, AND BOTH THE EXISITING AND THE NEW FACILITIES (IF IT IS ACQUIRED) WOULD BE DEPRECIATED STRAIGHT LINE OVER 10 YEARS (DOWN TO A ZERO BOOK VALUE). THE CORPORATE TAX RATE IS 40%. DISCUSS WHAT IS THE OPPORTUNITY COST OF USING THE EXISTING STORAGE CAPACITY?
An investment has an installed cost of $565,382. The cash flows over the four-year life of the investment are projected to be $194,584, $238,318, $186,674, and $154,313. If the discount rate is zero, what is the NPV? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. If the discount rate is infinite, what is the NPV? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. At what discount rate is the NPV just equal to zero? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

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