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nvestment Option "South" This potential investment is less risky and shorter term, so it has a minimum rate of return of 8.30%. This investment would require an initial outlay of cash of $121,500, and at the end of the 4-year life of this investment QQF Corporation is expected to have to pay a wind-down cost of $12,150. For the first 3 years of this investment, net annual cash inflows are expected to be $35,000 and for the last year of the investment, the net annual cash inflow is expected to be $87,500. 6. How much is the present value of the purchase of equipment? 7. How much is the present value of the wind-down cost? 8. How much is the present value of the annual cash inflows for the first 3 years? 9. How much is the present value of the annual cash inflow for the final year of this investment? 10. How much is the Net Present Value? 11. What is the Internal Rate, of Return? (round to the nearest hundredths place/input code: 0.00) %

nvestment Option "South" This potential investment is less risky and shorter term, so it has a minimum rate of return of 8.30%. This investment would require an initial outlay of cash of $121,500, and at the end of the 4-year life of this investment QQF Corporation is expected to have to pay a wind-down cost of $12,150. For the first 3 years of this investment, net annual cash inflows are expected to be $35,000 and for the last year of the investment, the net annual cash inflow is expected to be $87,500. 6. How much is the present value of the purchase of equipment? 7. How much is the present value of the wind-down cost? 8. How much is the present value of the annual cash inflows for the first 3 years? 9. How much is the present value of the annual cash inflow for the final year of this investment? 10. How much is the Net Present Value? 11. What is the Internal Rate, of Return? (round to the nearest hundredths place/input code: 0.00) %

Essentials Of Investments
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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Investment Option "South" This potential investment is less risky and shorter term, so it has a minimum rate of return of 8.30%. This investment would require an initial outlay of cash of $121,500, and at the end of the 4-year life of this investment QQF Corporation is expected to have to pay a wind-down cost of $12,150. For the first 3 years of this investment, net annual cash inflows are expected to be $35,000 and for the last year of the investment, the net annual cash inflow is expected to be $87,500. 6. How much is the present value of the purchase of equipment? 7. How much is the present. value of the wind-down cost? 8. How much is the present value of the annual cash inflows for the first 3 years? 9. How much is the present value of the annual cash. inflow for the final year of this investment? 10. How much is the Net Present Value? 11. What is the Internal Rate, of Return? (round to the nearest hundredths place/input code: 0.00) $ $ $ $ $ %
Transcribed Image Text:Investment Option "South" This potential investment is less risky and shorter term, so it has a minimum rate of return of 8.30%. This investment would require an initial outlay of cash of $121,500, and at the end of the 4-year life of this investment QQF Corporation is expected to have to pay a wind-down cost of $12,150. For the first 3 years of this investment, net annual cash inflows are expected to be $35,000 and for the last year of the investment, the net annual cash inflow is expected to be $87,500. 6. How much is the present value of the purchase of equipment? 7. How much is the present. value of the wind-down cost? 8. How much is the present value of the annual cash inflows for the first 3 years? 9. How much is the present value of the annual cash. inflow for the final year of this investment? 10. How much is the Net Present Value? 11. What is the Internal Rate, of Return? (round to the nearest hundredths place/input code: 0.00) $ $ $ $ $ %
Expert Solution
Step 1: Calculate present value of purchase of equipment and wind-down cost

Minumum rate of return, r = 8.30%

Initial outlay = $121,500

Wind down cost = $12,150


6.

The present value of the purchase of equipment is $121,500. 


7. 

The present value of wind-down cost is 

table row cell P V end cell equals cell fraction numerator W i n d space d o w n space cos t over denominator left parenthesis 1 plus r right parenthesis to the power of Y e a r end exponent end fraction end cell row blank equals cell fraction numerator $ 12 comma 150 over denominator left parenthesis 1 plus 0.083 right parenthesis to the power of 4 end fraction end cell row blank equals cell $ 8 comma 832.07 end cell end table


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