Company XYZ is evaluating a project that generates revenue of $200,000 per year for 10 years.The variable costs are 60% of the revenue. Fixed costs are $15,000. The equipment cost is$150,000. There net working capital will increase by $10.000 which will be reset at the end ofthe project. The equipment will be depreciated under straight-line method. The equipmentcan be sold for $25,000 at the end of the project. The risk of the project is above the averagerisk.The company pays tax at 38%. The assets of the company financed by equity only. Thecompany expected to pay $2.00 of dividend per share which grows at the rate of 4% per yearforever.The current price of the stock is $28.The company makes below adjustments to adjust the risk of the projects:Rate of 2.5% more is required by the high risky projects.Low risky project should be evaluated at the rate less than the cost of capital. The required rateof return for such projects will be reduced by 1.5%.What is the profitability index of the project?

The constant growth model is a stock valuation method used in finance to determine a stock's…

Answered: of return for such projects will be…

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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0.5.10 A company that manufactures magnetic flow meters expects to undertake a project that will have the cash flows estimated. At an interest rate of 10% per year, what is the equivalent annual cost of the project? Find the AW value using (a) tabulated factors, and (b) a spreadsheet. Table Summary: A table divided into two columns shows the items to consider for obtaining the annual cost of the project in the first column, and the numeric value of the items in the second column. First cost, $ -800,000 Equipment replacement cost in year 2, $-300,000 Annual operating cost, $/year Salvage value, $ Life, years -950,000 250,000 4
b. If the cost of capital for this project is 14%, what is your estimate of the value of the new project?
Assuming monetary benefits of a construction project at $50,000 per year, one-time costs (initial investment) of $15,000, recurring costs of $35,000 per year, a discount rate of 10 per cent, and a 4-year time horizon, calculate the net present value (NPV) of an information system's costs and benefits. Calculate the overall return on investment (ROI) of the project. During which year does break-even occur? Use the NPV template provided (modify to suit your answer) and clearly display the NPV, ROI, and year in which payback occurs. Write a paragraph explaining whether you would recommend investing in this project based on your ﬁnancial analysis. Explain your answer referring to the NPV, ROI and payback for this project. Discount Rate (10%) Year 0 - 1.0000 Year 1 - .9091 Year 2 - .8264 Year 3 - .7513 Year 4 - .6830
Please see attached:
When calculating the annual rate of return, the average investment is equal to initial investment divided by life of project. (initial investment plus $0) divided by 2. (initial investment plus salvage value) divided by 2. initial investment divided by 2.
Molin Inc. is considering to a project that will have the following series of cash flow from assets (in $ million): Year Cash flow 0 -1,580.92 1 453 2 749 3 935 The required return for the project is 6%. Year Cash flow 0 -1,580.92 1 453 2 749 3 935 1. The required return for the project is 6%. 2. What is the project's profitability index? 3. What is the internal rate of return (IRR) for this project?
A project has the following cash flow n 0 1 2 3 Cash flow -25,000 0 X X What is the value of X that will result in 15% rate of return?
A project that costs $50 million is expected to generate $20 million per year over the next 4 years. The project's cost of capital is 6%. a) Find the payback period (PP).b) Find the net present value (NPV).c) Find the internal rate of return (IRR).d) Find the modified internal rate of return (MIRR).
Q1) How much is the Profitability Index? Q2) What is the Discounted Payback period of the project? Q3) What is the NPV of the Project?
You are considering the following two projects and can take only one. Your cost of capital is 10.7%. The cash flows for the two projects are as follows ($ million) a. What is the IRR of each project? b. What is the NPV of each project at your cost of capital? c. At what cost of capital are you indifferent between the two projects? d. What should you do? a. What is the IRR of each project? The IRR for project A is %. (Round to one decimal place.) Data table D (Click on the following icon in order to copy its contents into a spreadsheet) Project A Year 0 -$100 B -$100 Year 1 $22 $49 Year 2 $31 $39 Print Done Year 3 Year 4 $39 $49 $31 $21 -
A permanent (life = infinity) project has the following estimates: First cost = -20 M, Annual cost = - 4 M, and Annual revenue = 8 M. At MARR = 10%, the annual worth of the project equals:
Assume a project has cash flows of -$54,300, $18,200, $37,300, and $14,300 for Years 0 to 3, respectively. What is the profitability index given a required return of 12.6 percent? 1.02 .95 .98 1.06 ☐ 1.00

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of return for such projects will be reduced by 1.5%. What is the profitability index of the project?