Problem 24-14 Abandonment Value [LO5] We are examining a new project. We expect to sell 5,300 units per year at $67 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $67 × 5,300 = $355,100. The relevant discount rate is 16 percent, and the initial investment required is $1,520,000. X a. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. After the first year, the project can be dismantled and sold for $1,240,000. If expected sales are revised based on the first year's performance, below what level of expected sales would it make sense to abandon the project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a. NPV b. Level of expected sales

Problem 24-14 Abandonment Value [LO5] We are examining a new project. We expect to sell 5,300 units per year at $67 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $67 × 5,300 = $355,100. The relevant discount rate is 16 percent, and the initial investment required is $1,520,000. X a. What is the base-case NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. After the first year, the project can be dismantled and sold for $1,240,000. If expected sales are revised based on the first year's performance, below what level of expected sales would it make sense to abandon the project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a. NPV b. Level of expected sales

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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Problem 11.041 Replacement Value With the estimates shown below, Sarah needs to determine the trade-in (replacement) value of machine X that will render its AW equal to that of machine Y at an interest rate of 13% per year. Determine the replacement value. Market Value, $ Annual Cost, $ per Year Salvage Value Life, Years The replacement value is $ Machine X ? -61.000 13,500 3 Machine Y 94,000 -40,000 for year Lincreasing by 2000 per year thereafter. 17,000 5
Vijay
Problem 10-05Payback A project has an initial cost of $55,050, expected net cash inflows of $13,000 per year for 9 years, and a cost of capital of 12%. What is the project's payback period? Round your answer to two decimal places.
A company is considering two mutually exclusive expansion plans. Plan A requires a $39 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.23 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%. Calculate each project's NPV. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Plan A: $. million Plan B: $ million Calculate each project's IRR. Round your answers to one decimal place. Plan A: % Plan B: % By graphing the NPV profiles for Plan A and Plan B, determine the crossover rate. Round your answer to one decimal place. % Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to one…
17. Problem 11.20 (NPV) eBook A project has annual cash flows of $6,000 for the next 10 years and then $10,500 each year for the following 10 years. The IRR of this 20-year project is 11.42%. If the firm's WACC is 8%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $
QUESTION 30 Twin Buttes Mine Co. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,500 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,600 at the end of each of the next 4 years. Each project has a WACC of 11%. What is the equivalent annual annuity of the most profitable project? a. $1,345.50 O b. $1,346.30 O c. $1,361.52 O d. $1,376.74 O e. $1,411.15
Question 23 Charles Henri is considering investing $60,000 in a project this is expected to provide him with cash inflows of $15,000 in each of the first three years and $20,000 for the following year. At a discount rate of 7 percent this investment has a net present value of ____, but at the relevant discount rate of 3 percent the project’s net present value is ____. Group of answer choices $5,000; $198.91 $5,000; $289.19 $5,000; $378.27 $10,000; $289.19 $10,000; $423.15
Question 20 Arrow Electronics is considering Projects S and L, which are mutually exclusive, equally risky, and not repeatable. Project S has an initial cost of $1 million and cash inflows of $370,000 for 4 years, while Project L has an initial cost of $2 million and cash inflows of $720,000 for 4 years. The CEO wants to use the IRR criterion, while the CFO favors the NPV method, using a WACC of 6.67%. You were hired to advise the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? That is, what is the difference between the NPVs for these two projects? Your answer should be between 112000 and 202000, rounded to even dollars (although decimal places are okay), with no special characters. 1,000,000
Problem 10-9 Calculating Project OCF [LO1] Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.3 million. The fixed asset will be depreciated straight- line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,654,000 in annual sales, with costs of $631,000. If the tax rate is 24 percent, what is the OCF for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) OCF $ 917,897
How much would you be willing to pay today for an investment that will pay you $2,500,000 in 30 years, assuming your discount rate is 14.25%.
5.
QUESTION 16 You are evaluating an investment that promises a series of varying annual payouts over the next five years. Specifically, the investment will yield $200 at the end of the first year, $200 at the end of the second year, $300 at the end of the third year, $400 at the end of the fourth year, and then a final payout of $600 at the end of the fifth year. Given the current market conditions, you can expect an annual return of 11.0% on investments carrying a similar risk profile. What is the present value of this investment opportunity, i.e., the total present value of the series of payments you will receive? A. $1,318.06 B. $1,297.16 OC. $1,276.75 D. $1,256.81 E. $1,237.31 F. $1,218.26 OG. $1,199.63 OH. $1,181.43

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