Kurt •TS7.40 Manufacturing, has to make a decision between two invest- ment alternatives. Investment A has an initial cost of $61,000. and investment B has an initial cost of $74,000. The useful life of investment A is 6 years; the useful life of investment B is 7 years. Given a cost of capital of 9% and the following cash flows for each alternative, determine the most desirable investment alterna- tive according to the net present value criterion. x YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 Investment A's Cash Flow $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 -- Investment P's Cash Flow 19,000 20,000 21,000 22,000 21,000 20,000 11,000
Kurt •TS7.40 Manufacturing, has to make a decision between two invest- ment alternatives. Investment A has an initial cost of $61,000. and investment B has an initial cost of $74,000. The useful life of investment A is 6 years; the useful life of investment B is 7 years. Given a cost of capital of 9% and the following cash flows for each alternative, determine the most desirable investment alterna- tive according to the net present value criterion. x YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 Investment A's Cash Flow $19,000 $19,000 $19,000 $19,000 $19,000 $19,000 -- Investment P's Cash Flow 19,000 20,000 21,000 22,000 21,000 20,000 11,000
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
Related questions
Question
Could you help solve s7.40. Thanks
Transcribed Image Text:2 3 4
million in a 6-year lease, and its annual
upkeep would be (paid at the of the
year 4. At an interest
b) club is a special deal to in
year 1, $30,000 in ye=
Bold's Gym, a club chain, is considering
bership slots. rate is Table S7.2.)
$ 750 (total)
The machine is expec
$ 400 ($200 each)
4. At an interest
...udels
1 Market
$ 750 ($250 each)
year
Cleaning/
maintenance
can make
a sales as
$300,000.
figure of
not and
$1,000 ($500 each)
$ 750 ($250 each)
Salvage value
S7.39
expanding into a new location: the initial investment would be
er which
than the
ss. If you
Capacity Planni
upkeep
year). Its planning horizon is 6 years out, and at the end, it can sell 41
equipment for $50,000. Club capacity is 500 members who would n
an annual fee of $600. Bold's expects to have no problems filling mem
bership slots. Assume that the interest rate is 10%. (See Table S7 2 )
a) What is the present value profit/loss of the deal?
Since opening day
explosive growth i
pitals in the U.S. 1
dren, Arnold Palr
patients who cam
more than 100 o
in the top 10% o
would recommer
Hospital's main
281 beds and a
steadily approae
Table S7.4, Exe
and
expenses would be $75,000 (paid at the beginning of
vould be
pay
emand is
pas
the first year. For $3,000 upfront they get a full 6-year membership
(i.e., 1 year free). Would it make financial sense to offer this deal?
Kurt Hozak, VP of Operations at McClain
ent that
annual
• TS7.40
Manufacturing, has to make a decision between two invest.
ment alternatives. Investment A has an initial cost of $61.000.
and investment B has an initial cost of $74,000. The useful life of
investment A is 6 years; the useful life of investment B is 7 vears
Given a cost of capital of 9% and the following cash flows for
each alternative, determine the most desirable investment alterna-
tive according to the net present value criterion.
ars. The
and the
8 years.
sion was necessa
With contin
23%
rest rate
ing 18 central
delivering the
every day and
stantial addit
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
achines.
Investment
A's Cash Flow $19,000 $19,00O $19,000 $19,000 $19,000 $19,000
ne costs
ready to move
11-story hosp
facility.
Investment
B's Cash Flow 19,000 20,000 21,000 22,000 21,000 20,000 11,000
stments
•• $7.41 Evaluate the following capital investments according
to net present value. Each alternative requires an initial invest-
ment of $20,000. Assume a 10% cost of capital. Which is the pie
ferred investment? PX
Thirty-five
issues as (1)
fer to the ne
EB
existing facil
pro forma a
Ultimately,
with a budg
tional 150 h
YEAR
CASH FLOW
CASH FLOW
FROM
CASH FLOW
FROM
FROM
$ 1,000
$ 10,000
region, Swa
top two flo
pleted at a
2100009
000'
e Tim
000' $
to 00
15.000
000's
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education