Maggie's Resorts expansion project to increase the number of bungalows on its property had the following information: Maggie's Resorts Initial Investment $7,954,000 Residual Value $1,046,000 Average annual cash inflow $1,257,900 Discount rate 10% Useful life of expansion in years 15
Maggie's Resorts expansion project to increase the number of bungalows on its property had the following information: Maggie's Resorts Initial Investment $7,954,000 Residual Value $1,046,000 Average annual cash inflow $1,257,900 Discount rate 10% Useful life of expansion in years 15
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 | $7,954,000 |
|---|---|
| Residual Value | $1,046,000 |
| Average annual |
$1,257,900 |
| Discount rate | 10% |
| Useful life of expansion in years | 15 |
Transcribed Image Text:Present value factor of an annuity of $1
-n
1 − (1 + r) ¯
Annuity Factor =
Present Value Factor of $1
PVE =
1
(1 + r)”
of periods
Maggie's
Res
PV of
annuity
PV of
residual
value
Total PV of
net cash
inflows
Initial
Tº
Investment
NPV of the
Project
Net Cash Inflow
where r
where PVF = Present Value Factor, r =
1,257,900✔
(Round your answers to two decimal places when needed and use rounded answers
for all future calculations).
1,046,000 ✓
=
Annuity PV
Factor
rate, and n
7.606079506✓
PV Factor
0.239392049
Is this an attractive project? Yes, it is a positive NPV. ✓
=
# of periods.
rate, and n = #
Present Value
9567687.41 x
250404.08 x
9818091.49 x
7,954,000 ✓
1864091.49 x
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