P 9-2 Investment Scenarios (LO 9-3)Arkansas Best Freightways is considering a purchase of three different potential trucks but is uncertain of thecash inflows associated with the following investment scenarios.YearYear 0 (today)Year 1Year 2Year 3Year 4Buy new truckIncreased profitsIncreased profitsIncreased profitsIncreased profitsInvestment 1(85,000)25,00025,00025,00025,000Investment 2(105,000)20,00030,00040,00050,000Investment 3(125,000)40,00030,00020,00010,000 Required:1. Calculate the internal rate of return for each of the three possible investments. (Round your answers as a percentage, rounded to 2decimal places. Negative amounts should be entered using a minus sign. Using the Excel IRR() function, calculate the internal rateof return for each of the three possible investments.)Investment 1Investment 2Investment 3Internal Rate ofReturn%%%2. Which investment has the highest internal rate of return?Highest internal rate of return

IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…

P 9-2 Investment Scenarios (LO 9-3) Arkansas Best Freightways is considering a purchase of three different potential trucks but is uncertain of the cash inflows associated with the following investment scenarios. Year Year 8 (today) Year 1 Year 2 Year 3 Year 4 Buy new truck Increased profits Increased profits Increased profits Increased profits Investment 1 (85,000) 25,000 25,000 25,000 25,000 Investment 2 (105,000) 20,000 30,000 40,000 50,000 Investment 3 (125,000) 40,000 30,000 20,000 10,000

P 9-2 Investment Scenarios (LO 9-3) Arkansas Best Freightways is considering a purchase of three different potential trucks but is uncertain of the cash inflows associated with the following investment scenarios. Year Year 8 (today) Year 1 Year 2 Year 3 Year 4 Buy new truck Increased profits Increased profits Increased profits Increased profits Investment 1 (85,000) 25,000 25,000 25,000 25,000 Investment 2 (105,000) 20,000 30,000 40,000 50,000 Investment 3 (125,000) 40,000 30,000 20,000 10,000

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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10. Assume a $50,000 investment and the following cash flows for two alternatives: Page 456 Year Investment X Investment Y 1 $10,000 $ 20,000 2 11,000 25,000 13,000 15,000 16,000 5 30,000 Which of the alternatives would you select under the payback method? 11. Referring to the previous problem, if the inflow in the fifth year for Investment X were $30,000,000 instead of $30,000, would your answer change under the payback method? 12. Referring to problem 10, analyze the two investment alternatives under the net present value method using a 15 percent discount rate. Would your answer change?
16. Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 10 percent. Year AZM Mini-SUV AZF Full-SUV 0123 -$575,000 -$980,000 373,000 395,000 219,000 477,000 185,000 339,000 a. Based on the payback period, which project should be accepted? b. Based on the NPV, which project should be accepted? c. Based on the IRR, which project should be accepted? d. Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.
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Expansion versus replacement cash flows Tesla Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the following table. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Project A Project B Initial investment −$4,646,000 $1,553,000* Year Operating cash flows 1 $562,000 $390,000 2 915,000 390,000 3 1,343,000 390,000 4 2,218,000 390,000 5 3,405,000 390,000 *After-tax cash inflow expected from liquidation. a. If Project A, which requires an initial investment of −$4,646,000, is a replacement for Project B and the $1,553,000 initial investment shown for Project B is the after-tax cash inflow expected from liquidating it, what would be the net cash flows for this replacement decision? b. How can an expansion decision such as project A be viewed as a special form of a…
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $150,000 $125,000 2 122,000 147,000 3 106,000 101,000 4 96,000 70,000 5 29,000 60,000 Total $503,000 $503,000 Each project requires an investment of $272,000. A rate of 15% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1a. Compute the cash payback period for each project. 1a. Compute the cash…
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $171,000 $143,000 2 140,000 168,000 3 121,000 115,000 4 109,000 81,000 5 34,000 68,000 Total $575,000 $575,000 Each project requires an investment of $311,000. A rate of 12% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8. 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: la. Compute the cash payback period for each project. 2. 3.
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $176,000 $147,000 2 144,000 173,000 124,000 118,000 4 112,000 83,000 36,000 71,000 Total $592,000 $592,000 Each project requires an investment of $320,000. A rate of 12% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: la. Compute the cash payback period for each project. Cash Payback Period Plant Expansion Retail Store Expansion 1b. Compute the net present value. Use the…
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