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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
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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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
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
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