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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Transcribed Image Text:1- The following data pertain to an investment in equipment:
Investment in the project.
Annual Net cash inflows.
Working capital required..
Salvage value of the equipment.
Life of the project.
$10,000
$2,400
$5,000
$1,000
8 years
At the completion of the project, the working capital will be released for use elsewhere.
Compute the net present value of the project, using a discount rate of 10%:
A. $606
B. $8,271
C. S(1,729)
D. $1,729
2- The following information is available on a new piece of equipment:
$21,720
Cost of the equipment...
Salvage value.
Annual cash inflows.
$5,000
Internal rate of return.
16%
Required rate of return.
10%
The life of the equipment is approximately:
A. 6 years
B. 4.3 years
C,8 years
D. It is impossible to determine from the data given.
3- Meclam, Inc., is considering the purchase of a machine that would cost $100,000 and
would last for 9 years. At the end of 9 years, the machine would have a salvage value of
$23,000. The machine would reduce labor and other costs by $19,000 per year.
Additional working capital of $2.000 would be needed immediately. All of this working
capital would be recovered at the end of the life of the machine. The company requires a
minimum pretax return of 13% on all investment projects. The net present value of the
proposed project is closest to:
A. $3,833
B. $5,167
C. -$2,492
D. none of answers are correct.
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