A project worth 100 million today can be taken at a costs of 88.24 million. Now suppose theinvestment option does not expire today, but rather will exist another year. Further, suppose that it isreasonable to expect that, if we wait until next year, there is 70% chance that the market will improveand the same project would be worth $ 113.21 million. On the other hand there is 30% chance thatmarket will decline, which will result in a value of only 78.62 million. In either case, the project costwill increase by 2%. Assume that risk free rate is 3% and required rate of return on this project is 9%per annum.Answer the following questions based on this information.(1) When would you like to invest in the project (now or next year)?

Expected cost of project can be found out from the given probability of the project.

project worth 100 million today can be taken at a costs of 88.24 million. Now sup vestment option does not expire today, but rather will exist another year. Further, asonable to expect that, if we wait until next year, there is 70% chance that the r nd the same project would be worth $ 113.21 million. On the other hand there is arket will decline, which will result in a value of only 78.62 million. In either case, Il increase by 2%. Assume that risk free rate is 3% and required rate of return on t er annum. nswer the following questions based on this information. When would you like to invest in the project (now or next year)?

project worth 100 million today can be taken at a costs of 88.24 million. Now sup vestment option does not expire today, but rather will exist another year. Further, asonable to expect that, if we wait until next year, there is 70% chance that the r nd the same project would be worth $ 113.21 million. On the other hand there is arket will decline, which will result in a value of only 78.62 million. In either case, Il increase by 2%. Assume that risk free rate is 3% and required rate of return on t er annum. nswer the following questions based on this information. When would you like to invest in the project (now or next year)?

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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Novak Company is contemplating an investment costing $168,810. The investment will have a life of 8 years with no salvage value and will produce annual cash flows of $30,500. Click here to view PV tables. What is the approximate internal rate of return associated with this investment? (Use the above table.) (Round answer to O decimal places, e.g. 15%) Internal rate of return. %6
Net present value. Quark Industries has a project with the following projected cash flows: Initial cost: $280,000 Cash flow year one: $30,000 Cash flow year two: $80,000 Cash flow year three: $153,000 Cash flow year four: $153,000 a. Using a discount rate of 8% for this project and the NPV model, determine whether the company should accept or reject this project. b. Should the company accept or reject it using a discount rate of 15%? c. Should the company accept or reject it using a discount rate of 18%?
Suppose a particular investment project will require an initial cash outlay of $1,400,000 and will generate a cash inflow of $700,000 in each of the next three years. What is the project’s IRR? Suppose a company’s hurdle rate is 20%, should it accept the project? Group of answer choices 20%; accept the project 23%; accept the project 20%; reject the project 23%; reject the project
Heedy Inc. is considering a capital investment proposal that costs $460,000 and has an estimated life of four years, and no residual value. The estimated net cash flows are as follows: Net Cash Flow $195,000 160,000 120,000 80,000 Year 1 2 3 4 The minimum desired rate of return for net present value analysis is 10%. The present value of $1 at compound interest rates of 10% for 1, 2, 3, and 4 years is 0.909, 0.826, 0.751, and 0.683, respectively. Determine the net present value. Enter negative values as negative numbers. 5,825 X
A project has two possible outcomes. The good outcome returns $9,000 next year and occurs 59% of the time. The bad outcome is total failure, retuming $0 , the rest of the time. If the risk free interest rate is 3.2% , the expected market return is 12.6% , and the project beta is 1.1 , what is the price of the project today?
A project that costs $2,300 to install will provide annual cash flows of $730 for each of the next 5 years. a. Calculate the NPV if the opportunity cost of capital is 12%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV b. Is this project worth pursuing? Yes O No c. What is the project's internal rate of return IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.) %24
80. Which one of the following should be assumed about a project that requires a $100,000 investment at time zero, then returns $20,000 annually for 5 years? A. The NPV is negative. B. The NPV is zero. C. The profitability index is 1.0. D. The IRR is negative.
1. A project requires an initial capital cost of (40 million ID). The investor expects the project will generate annual returns of (12 million ID), with expenditures about (4 million ID) annually. If you know that the economic life is (12) years, and the salvage value after the end of the economic life is (4 million ID). Considering that the less acceptable interest rate for the investor is (10%): A. Determining the economic feasibility for investing using the present worth method? B. What is the equivalent annual worth of this investment? C. Find the internal rate of return?
Generro Company is considering the purchase of equipment that would cost$60,000and offer annual cash inflows of$16,300over its useful life of 5 years. Assuming a desired rate of return of10%, is the project acceptable? (PV of \$1 and PVA of \$1) (Use appropriate factor(s) from the tables provided.) Mitiple Choice The answer cannot be detergined. No, since the negative net present value indicates the investmeot will yield a fate of retum below the desred tate of return. Yes, since the investment will generate$81.500in future cosh flows, which is gremer than the purchase cont of$60,000Yes, since the positve net present valse ind cates the investment will eam a rate of return greater than10 h.
CVD Ltd needs to choose from three mutually exclusive projects. The net cash flows from the projects will depend on market demand. All of the projects will last for only one year. The forecast net cash flows and their associated probabilities are given below:Market Demand Probability Weak 0.20 Average 0.50 Good 0.30 Market Demand Project A Project B Project C Weak R450 000 R350 000 R550 000 Average R550 000 R400 000 R500 000 Good R650 000 R450 000 R700 000 Required:Calculate the expected value of the net cash flows from each of the three projects.
1) Rainbow Corp. is considering an investment whereby it will invest $100 in a perpetuity that will pay the firm $30 annually forever, starting one year from now. If the firm has a payaback period of 3 years, will it do the project? a) Yes b) No 2) If Rainbow has a cost of capital of 10%, will it invest in the project when doing an NPV analysis? a) Yes b) No
4. If the terminal balance of a 5-year project at 10% s0 then which one below is true? A. The IRR of the project is less than 10% B. The future worth of the project is greater than 0 C. Discounted payback perlod is 5 years OD. The present worth of the project is less than 0 5 In an incremental IRR analysis, which analysis period should be used to compare 2 mutually altemative projects with 3 and 4 years of useful lives? (Assume an indefinite analynis perlod and that the projects are repeatable) O A. B years O B. 12 years OC. 4 years D. 3 years

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