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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Similar questions

A project which cost you $150,000 to implement, promises toproduce the following cash-flows over its 5 years period:Year 1 : 40,000Year 2 : $30,000Year 3 : $20,000Year 4 : $50,000Year 5: $80,000If investors expect 15% p.a as their required rate of return, if thisproject is profitable to invest? What is the payback peirod for this project?
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?
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
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?…
Compute the discounted payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent and the maximum allowable discounted payback is three years. Time: 0 1 2 3 4 5 Cash flow: −5,000 500 2,000 3,000 1,500 500
Subject: acounting
H1. Account
Questions: Crowell Company is considering two capital investments. Both investments have an initial cost of $9,000,000 and total net cash inflows of $17,000,000 over 10 years. Crowell requires a 15% rate of return on this type of investment. Expected net cash inflows are as follows: Requirements - X 1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue? 2. Explain the relationship between NPV and IRR. Based on this relationship and the company's required rate of return, are your answers as expected in Requirement 1? Why or why not? 3. After further negotiating, the company can now invest with an initial cost of $8,100,000. Recalculate the NPV and IRR. Which plan, if any, should the company pursue? Print Done Data Table Year Plan Alpha Plan Beta 1 1,700,000 $ 1,700,000 2 1,700,000 2,400,000 1,700,000 3,100,000 4 1,700,000 2,400,000 1,700,000 1,700,000 6 1,700,000 1,600,000 1,700,000 1,300,000 8 1,700,000 1,000,000 9 1,700,000 700,000…
K- Consider a project with free cash flow in one year of $140,702 or $180,360, with either outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 17%. The risk-free interest rate is 5% (Assume no taxes or distress costs) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way-that is, what is the initial market value of the unlevered equity? c. Suppose the initial $80,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, and what is its initial value according to M&M? a. What is the NPV of this project? The NPV is $ 57200 (Round to the nearest dollar) b. Suppose that to raise the funds for the initial investment, the project is sold to investors…
Refer to the following information. Which of the two projects, A or B, is better in terms of internal rate of return? Kenner Company is considering two projects. Project A $85,000 $20,676 Initial investment Annual cash flows Life of the project Depreciation per year 2 3 4 5 6 7 8 9 10 6 years $14,167 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 Present value of an Annuity of $1 in Arrears Periods 8% 12% 1 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 Project B $24,000 $6,011 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 5 years $4,800 14% 0.877 1.647 2.322 2.914 4.433 3.889 4.288 4.639 4.946 5.216

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