NPV and maximum return A firm can purchase new equipment for a $22,000 initial investment. The equipment generates an annual after-tax cash inflow of $6,000 for 6 years. a. Determine the net present value (NPV) of the asset, assuming that the firm has a cost of capital of 9%. Is the project acceptable? b. Determine the maximum required rate of return that the firm can have and still accept the asset. a. The net present value (NPV) of the new equipment is $ (Round to the nearest cent.)

NPV and maximum return A firm can purchase new equipment for a $22,000 initial investment. The equipment generates an annual after-tax cash inflow of $6,000 for 6 years. a. Determine the net present value (NPV) of the asset, assuming that the firm has a cost of capital of 9%. Is the project acceptable? b. Determine the maximum required rate of return that the firm can have and still accept the asset. a. The net present value (NPV) of the new equipment is $ (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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2. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,600,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company's WACC is 10%, and project Delta has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $350,000 $475,000 $425,000 $500,000 Which of the following is the correct calculation of project Delta's…
Capital Investment Analysis: Spanish Peaks Railroad Inc
Example: Evaluating a business investment opportunity • A low-risk, 4-year investment opportunity promises to pay $3,000, $6,000, and $5,000 at the end of the first, second and fourth year, respectively. A cash injection of $1,000 is required at the end of the third year. The investment may be purchased for $10,000, which would have to be borrowed at an effective interest rate of 10%. Use Economic Value Added principle to determine whether the investment should be undertaken.
1. A project requires an initial capital cost of (40 million ID). The investor expects the project will generate annual returns of (12 million ID), with expenditures about (4 million ID) annually. If you know that the economic life is (12) years, and the salvage value after the end of the economic life is (4 million ID). Considering that the less acceptable interest rate for the investor is (10%): A. Determining the economic feasibility for investing using the present worth method? B. What is the equivalent annual worth of this investment? C. Find the internal rate of return?
None
NPV (net present value) Craig is considering several capital investments for the upcoming year. Use the NPV (net present value) method to determine whether the company should investment in the following independent projects: Project 1 costs $28,000 and offers 8 annual cash flows of $8,600. Craig feels this type of investment should require an annual return of 16% on projects like this. Project 2 costs $35,000 and offers 6 annual cash flows of $12,000. Craig feels this type of investment should require an annual return of 12% on projects like this. Requirements 1. Calculate the NPV of both of these projects 2. What is the maximum acceptable price Craig should pay for each of these projects?
c. A company is planning to invest in a project over a 5-year period, but wants to know its financial implications. It expects the cash in-flow return on the investment to steadily increase over the 5 years. Using the information below, help determine the Total Net Cash Flows, the Net Present Value and the estimated Payback Period. Note: Estimate the payback period to the nearest year. Discount Rate 12% Investment Project Initial Investment Year 1 Year 2 Year 3 Year 4 Year 5 Cash Flow $ $ $ $ $ $ Total Net Cash Flow (5,000) 800 ? 900 ? 1,500 ? 1,800 ? 3,200 NPV of investment Estimated Payback Period
Explain how did it get the after-tax cash flow, NPV, EVA, and MVA
Payback, NPV, and IRR Rieger International is evaluating the feasibility of investing $87,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table: E. The firm has a 9% cost of сapital. a. Calculate the payback period for the proposed investment. b. Calculate the net present value (NPV) for the proposed investment. c. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment. d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? ..... a. The payback period of the proposed investment is years. (Round to two decimal places.) b. The NPV of the proposed investment is $ (Round to the nearest cent.) c. The IRR of the proposed investment is %. (Round to two decimal places.) d. Should Rieger International accept or reject the proposed investment?…
Question 2 A firm is considering an investment project that has a cost of $1 million and is expected to generate an annual after-tax cash flow of $250,000 for five years. It has already spent $25,000 in research and development (R&D) costs for the project. If the firm's required rate of return is 14 percent and consider R&D a sunck cost, what is the NPV of this project? A $25,000 B -$141,750 C +141,750 D $858,250
An investor has invested $1,000,000 in a real estate project that will give him an IRR (Internal Rate of Return) of 10%. The NPV of the cash flows of this project, discounted at 10% will be: Select one: a. 100,000 b. 0 c. 900,000 d. Positive e. Both a and d
maka

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