Problem 5-7 Calculating Profitability Index Vince plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $480,000, to be paid immediately. Vince expects aftertax cash inflows of $103,000 annually for eight years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 13 percent. What is the project's Pl? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.) PI

Problem 5-7 Calculating Profitability Index Vince plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $480,000, to be paid immediately. Vince expects aftertax cash inflows of $103,000 annually for eight years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 13 percent. What is the project's Pl? (Do not round intermediate calculations. Round your answer to 3 decimal places, e.g., 32.161.) PI

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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Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and needed books for a master's program will have an upfront cost of $53,000. If she enrolls in an MBA program, Jenny will quit her current job, which pays $50,000 per year (for simplicity, treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra $23,000 per year over a business career of 37 years. Jenny believes that her opportunity cost of capital is 6.4%. Given her estimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs? The following time line depicts the cash flows associated with this problem: Tuition (CFO) Extra earnings 0 - $103,000 1 2 $23,000 $23,000 ... The net present value (NPV) of entering this MBA program is $ nearest dollar.) ... 37 $23,000 (Round to the
OUESTION 6Charlie's Hamburgers is considering adding hotdogs to its menu. The hotdogs require purchasing cooking equipment on sale for S18, 000 . The asset has a 6 - year life, will produce a cash flow of S4, 700 in the first year, S5, 100 in the second year, S5, 500 in the third year. S5, 900 in the fourth year, 6, 200 in the fifth year, and S6, 400 in the sixth year. The cost of capital is 10% . What is the project's internal Rate of Retum (IRR) ? A 19.44 % B 017.86% C 24.73%C O D.20.260/0 0 E. 31.25%
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Knowledge Check A purchase of a backhoe with an 8-year life requires an initial investment of $88,300, has positive cash flows of $10,000 per year, and has an estimated salvage value of $21,700. Indicate the inputs to be entered into the financial calculator keys. What is the return of the investment? (Round internal rate of return to two decimal places (e.g., 52.75%).) Inputs Calculator Keys IRR N 8 -2.143 % ? | PV 88300 i PMT 10000 FV
You are considering two investment options. In option A, you have to invest $4,500 now and $700 three years from now. In option B, you have to invest $3,700 now, $1,900 a year from now, and $900 three years from now. In both options, you will receive four annual payments of $1,800 each. (You will get the first payment a year from now.) Which of these options would you choose based on (a) the conventional payback criterion, and (b) the present worth criterion, assuming 8% interest? Assume that all cash flows occur at the end of a year. Click the icon to view the interest factors for discrete compounding when i = 8% per year. ..... (a) The conventional payback period for option A is 3 years. (Round to the nearest whole number place.) The conventional payback period for option B is 4 years. (Round to the nearest whole number place.) Which of these options would you choose based on the conventional payback criterion? Choose the correct answer below. O A. Option B O B. Both options are…
persnal Finance Problem A retirement home at Deer Trail Estates now costs $137,000 Inflation is expected to cause this price to increase at 4% per year over the 22 years before C. L. Donovan retires. If Donovan earns 8% on his investments, ow large must an equal, end-of-year deposit must be to provide the cash needed to buy the home 22 years from now? the equal, annual end of year deposit to be made each year into the account is (Round to the nearest cent)
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Investment 1: Investing that $120,000 in a saving account for 15 years. There are two banks for her choice. Bank A pays a rate of return of 8.5% annually, compounding semi-annually. Bank B pays a rate of return of 8.45 annually, compounding quarterly. Investment 2: Putting exactly an equal amount of money into ANZ Investment Fund at the end of each month for 15 years to get 330 000 she still shorts of now. The fund is offering a rate of return 7% per year, compounding monthly.How much is the annual interest rate, assuming compounding annually Holly should aim at if she chooses to invest her $120 000 in a saving account to get the $450,000 ready in just 10 years from now?
Management of Paul White, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $310,439. They project that the cash flows from this investment will be $137,190 for the next seven years. If the appropriate discount rate is 14 percent, what is the IRR that Paul White management can expect on this project? (Do not round discount factors. Round other intermediate calculations to 0 decimal places e.g. 15 and final answer to 2 decimal places, e.g. 5.25%.) IRR is

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