NPV and IRR Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $33,960, and the project is expected to yield after-tax cash inflows of $4,000 per year for 13 years. The firm has a cost of capital of 14%. a. Determine the net present value (NPV) for the project. b. Determine the internal rate of return (IRR) for the project. c. Would you recommend that the firm accept or reject the project? The ND V of the proiect is S (Round to the nearest cent )

NPV and IRR Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $33,960, and the project is expected to yield after-tax cash inflows of $4,000 per year for 13 years. The firm has a cost of capital of 14%. a. Determine the net present value (NPV) for the project. b. Determine the internal rate of return (IRR) for the project. c. Would you recommend that the firm accept or reject the project? The ND V of the proiect is S (Round to the nearest cent )

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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Jay is currently evaluating a project with the following estimated investment requirements ($ millions) by year (starting in year 0): investment year investment 0 11.2 1 16.6 2 15.8 3 11.3 4 18 The estimated revenues ($ millions) from the project, expected to begin at time 3, are given in the table below: \ investment year reveune 0 13.3 1 14 2 8.4 3 14.7 4 9.9 5 8.4 6 13.4 To account for the different risk characteristics throughout the project's life, Jay has determined that a hurdle rate of 24% should be used beginning at time 0, while 30% should be used beginning in period 5. Determine the NPV for the project. NPV =
(Payback period, net present value, profitability index, and internal rate of return calculations) You are considering a project with an initial cash outlay of $72,000 and expected cash flows of $20,880 at the end of each year for six years. The discount rate for this project is 10.8 percent. a. What are the project's payback and discounted payback periods? b. What is the project's NPV? c. What is the project's PI? d. What is the project's IRR? a. The payback period of the project is years. (Round to two decimal places.)
Use the NPV method to determine whether Kyler Products should invest in the following projects: Project A: Costs $280,000 and offers seven annual net cash inflows of $52,000. Kyler Products requires an annual return of 12% on investments of this nature. Project B: Costs $385,000 and offers 9 annual net cash inflows of $75,000. Kyler Products demands an annual return of 10% on investments of this nature. (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Caclulate the NPV (net present value) of each project. Begin by calculating the NPV of Project A. Project A: Years 1-7 0 Present value of annuity Investment Net present value of Project A Calculate…
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $34,927 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,500 $22,500 $4,500 $59,500 Beta Project 7,000 23,500 27,904 58,404 A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to calculate internal rate of return. Alpha Project fill in the blank % Beta Project fill in the blank % B. Make a recommendation on which one to accept.
Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Year Initial investment 1. 2. 3. Required A Required B a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred? Complete this question by entering your answers in the tabs below. Net Cash Flows $ Project 1 $(42,000) 10,500 27,800 18,500 Compute payback period for each project. Based on payback period, which project is preferred? Note: Cumulative net cash outflows must be entered with a minus sign. Do not round your intermediate calculations. Round your Payback Period answer to 2 decimal places. $ $ $ Project 1 Year 1 Year 2 Year 3 Totals Initial investment Net present value Project 2 Year 1 Year 2…
A project requires an initial investment of $225,000 and is expected to generate the following net cash inflows: Year 1: $95,000 Year 2: $80,000 Year 3: $60,000 Year 4: $55,000 Required: Compute net present value of the project if the minimum desired rate of return is 12%. Calculate the following: Payback Period NPV IRR
Use the NPV method to determine whether Stenback Products should invest in the following projects: Project A: Costs $260,000 and offers eight annual net cash inflows of $54,000. Stenback Products requires an annual return of 14% on investments of this nature. Project B: Costs $395,000 and offers 10 annual net cash inflows of $77,000. Stenback Products demands an annual return of 12% on investments of this nature. (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Caclulate the NPV (net present value) of each project. Begin by calculating the NPV of Project A Net Cash Inflow Project A: Years 1-8 0 Present value of annuity Investment Net present value…
Suppose that a project requires an initial investment of 20 000 USD at the begynning of year 1. The project is expected to return 25 000 USD at the end of year 1. The required rate of return for the project is 20%. Calcualte the Net Present Value of the project as well as the Internal Rate of Return.
Vermont Technology is considering a project that would last for 3 years and have a cost of capital of 21.72 percent. The relevant level of net working capital for the project is expected to be $1,990.00 immediately (at year 0); $4,830.00 in 1 year; $15,200.00 in 2 years; and $0.00 in 3 years. Relevant expected revenue, costs, depreciation, and cash flows from capital spending in years 0, 1, 2, and 3 are presented in the following table. The tax rate is 50.00 percent. What is the net present value of this project? Year 0 Revenue $0.00 Costs $0.00 Depreciation $0.00 Cash flows from capital spending $-$7,130.00 Year 1 Year 3 $12,700.00 $12,700.00 $12,700.00 $4,020.00 $4,020.00 $4,020.00 $1,950.00 $1,950.00 $1,950.00 $0.00 Year 2 $0.00 $4,180.00 $3,195.22 (plus or minus $10) -$5,233.42 (plus or minus $10) -$8,995.62 (plus or minus $10) $5,002.99 (plus or minus $10) O None of the above is within $10 of the correct answer
You are responsible to manage an IS project with a 4-year horizon. The annal cost of the project is estimated at $40,000 per year, and a one-time costs of $120,000. The annual monetary benefit of the project is estimated at $96,000 per year with a discount rate of 6 percent. a. Calculate the overall return on investment (ROI) of the project. b. Perform a break-even analysis (BEA). At what year does break-even occur?
Determine the payback period, in years, of a project that is expected to generate $80,000 per year in cash flow. The project cost (initial investment) is $1,100,000. Then, name one other method (excluding payback period) used by financial managers, to assess the viability of a multi-year project. State specifically how the method that you named is different from the payback period method.
Find internal rate of return of a project with an initial cost of $43,000, expected net cash inflows of $9,550 per year for 8 years, and a cost of capital of 9.35%. Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72. A. 15.64% B. 14.90% C. 13.70% D. 14.75% E. 11.17%

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