Maggie's Resorts expansion project to increase the number of bungalows on its property had the following information: Maggie's Resorts Initial Investment $7,884,000 Residual Value $1,072,000 Average annual cash inflow $1,341,500 Discount rate 12% Useful life of expansion in years 11
Maggie's Resorts expansion project to increase the number of bungalows on its property had the following information: Maggie's Resorts Initial Investment $7,884,000 Residual Value $1,072,000 Average annual cash inflow $1,341,500 Discount rate 12% Useful life of expansion in years 11
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
Maggie's Resorts expansion project to increase the number of bungalows on its property had the following information:
Maggie's Resorts
| Initial Investment | $7,884,000 |
|---|---|
| Residual Value | $1,072,000 |
| Average annual |
$1,341,500 |
| Discount rate | 12% |
| Useful life of expansion in years | 11 |
Transcribed Image Text:Present value factor of an annuity of $1
1 − (1 + r)
Annuity Factor
Present Value Factor of $1
1
(1 + r)"
PVF =
of periods
Maggie's
Resorts
PV of
annuity
PV of
residual
value
Total PV of
net cash
inflows
Initial
Investment
NPV of the
Project
where PVF =
(Round your answers to two decimal places when needed and use rounded answers
for all future calculations).
Net Cash Inflow
n
1,341,500✓
1,072,000 ✓
where r = rate, and n
Present Value Factor, r = rate, and n = #
Annuity PV
Factor
5.93770✔
=
Is this an attractive project? [No, it is a negative NPV. ✓
PV Factor
# of periods.
28.98792 x
Present Value
7,965,423.39 x
31,075,046.61 x
39,040,469.99 X
7,884,000.00✔
31,156,469.99 x
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