Part 2: Net Present Value 3. An Oklahoma-based company is interested in establishing a small ethanol refinery. Before they start, they want to determine the Net Present Value (NPV) to see if it's a worthwhile project. The ethanol refinery's cash inflows and outflows are listed in the table below. The time horizon is 3 years, with a discount rate of 5%. The initial investment is $100,000. a. First, complete the table by calculating the net cash flows for each of the three years. Cash Inflows Cash Outflows Net Cash Flow Year 1 Year 2 Year 3 $115,000 $150,000 $165,000 $173,000 $82,000 $59,500 b. Second, determine the NPV of the ethanol refinery. c. After calculating the NPV, should they build the ethanol plant? Briefly explain why.

Part 2: Net Present Value 3. An Oklahoma-based company is interested in establishing a small ethanol refinery. Before they start, they want to determine the Net Present Value (NPV) to see if it's a worthwhile project. The ethanol refinery's cash inflows and outflows are listed in the table below. The time horizon is 3 years, with a discount rate of 5%. The initial investment is $100,000. a. First, complete the table by calculating the net cash flows for each of the three years. Cash Inflows Cash Outflows Net Cash Flow Year 1 Year 2 Year 3 $115,000 $150,000 $165,000 $173,000 $82,000 $59,500 b. Second, determine the NPV of the ethanol refinery. c. After calculating the NPV, should they build the ethanol plant? Briefly explain why.

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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A proposal is in place to set up a nuclear power plant cooling water filtration project along a river. The benefits (B) are projected to be 10,000 USD per year forever, starting in year 1. The costs (C) are 50,000 USD in year 0 and 50,000 USD at the end of year 2. At 10% annual interest, it this project beneficial? Provide solutions and justifications
Question: Big Steve's, maker of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $105,000 and will generate net cash inflows of $19,000 per year for 8 years. a. What is the project's NPV using a discount rate of 8 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 17 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not?
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A company has to make a decision about expanding its production facilities. Research indicates that the desired expansion would require an immediate outlay of $130,000 and an outlay of a further $20,000 in 3 years. The net cash returns are shown below. Find the net present value of the project. According to the net present value criterion, should the expansion project be undertaken if the required rate of return is 10%? Year 1 to Year 8 Year 9 to Year 12 $22,000 per year $18,000 per year The net present value of the expansion project is $ (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
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1 Abusiness is considering the option of buying a plece of equipment that has a life of 5 years. The original cost of the equipment is RMS50,000 and the interest rate is 10%, It is expected that the net cash flow is RM15,000 annually and the salvage value is RM5,000. Required a. What is the NPV? b. Recommend whether the investment is feasible. 2 Talis Construction Company is considering developing factory buildings in Seremban. This project is mutually exclusive, where only one type of housing is to be selected. The initial capital investment is as follows for the three types of factory buildings: Three-storey Five-storey link RM400 million Initial capital investment RM200 millon
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