Q 1- Nadec company is considering investment in one of two mutually exclusive projects, P andQ. The following is the data about the two projects.ProjectInitial investmentProject lifeAnnual cash inflowThe standard deviation ofcash inflowOverall cost of capital forthe firmRisk-free rate of returnCV of cash inflow for thefirmP$10,0005 years$4,000$200012%6%30%Q$10,0005 years$3,8001,33012%6%30%A- Compute the current net present value for the projects.B- Consider the risk and evaluate the projects using risk-adjusted discount rates following the sixsteps you have learned.C- Which project is recommended to the management to choose and why?D- Can the risk-adjusted discount rate be calculated using the CAPM?

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Q 1 -Nadec company is considering investment in one of two mutually exclusive projects, P and Q. The following is the data about the two projects. Project Initial investment Project life Annual cash inflow The standard deviation of cash inflow Overall cost of capital for the firm P $10,000 5 years $4,000 $2000 12% Risk-free rate of return 6% CV of cash inflow for the 30% firm Q $10,000 5 years $3,800 1,330 12% 6% 30% A- Compute the current net present value for the projects. B- Consider the risk and evaluate the projects using risk-adjusted discount rates following the six steps you have learned. C- Which project is recommended to the management to choose and why? D- Can the risk-adjusted discount rate be calculated using the CAPM?

Q 1 -Nadec company is considering investment in one of two mutually exclusive projects, P and Q. The following is the data about the two projects. Project Initial investment Project life Annual cash inflow The standard deviation of cash inflow Overall cost of capital for the firm P $10,000 5 years $4,000 $2000 12% Risk-free rate of return 6% CV of cash inflow for the 30% firm Q $10,000 5 years $3,800 1,330 12% 6% 30% A- Compute the current net present value for the projects. B- Consider the risk and evaluate the projects using risk-adjusted discount rates following the six steps you have learned. C- Which project is recommended to the management to choose and why? D- Can the risk-adjusted discount rate be calculated using the CAPM?

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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Year Cash Flow (A) Cash Flow (B) 0 −$ 417,000 −$ 36,000 1 48,000 19,600 2 58,000 14,100 3 75,000 14,600 4 532,000 11,400 The required return on these investments is 13 percent. What is the payback period for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. What is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. What is the IRR for each project? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. What is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. Based on your answers in (a) through (d), which project will you finally choose?
6. Joliet Company is considering two alternative investments. The company requires an 18% return from its investments. Category Initial Investment Net cash flows anticipated: Year 1 Year 2 Year 3 Year 4 Year 5 Project X 108,000 36,000 39,000 32,000 34,000 25,000 Compute the IRR for both Projects and recommend one of them. Project Y $98,000 25,000 45,000 42,000 28,000 17,000
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Initial investment Project X1 $ (80,000) Project X2 $ (120,000) Net cash flows in: Year 1 25,000 60,000 Year 2 Year 3 35,500 50,000 60,500 40,000 a. Compute each project's net present value. b. Compute each project's profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index? Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute each project's net present value. Net Cash Flows Present Value of Present Value of Net 1 at 4% Cash Flows Project X1 Year 1 $ 25,000 Year 2 35,500 Year 3 60,500 0.8890 Totals $ 121,000 $ 0 Initial investment (80,000) Net present value $ (80,000) Project X2 Year 1 Year 2 Year 3 Totals…
Lesi PayUBLK Perou, el Presem velue 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 Retall Store Expansion 1 2 3 4 5 Total Year Each project requires an Investment of $241,000. A rate of 15% has been Present Value of $1 at Compound Interest 6% 10% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 1 2 3 4 5 6 7 8 9 10 Required: $133,000 108,000 94,000 85,000 26,000 $446,000 0.909 Net present value 0.826 0.751 15% 0.893 0.870 0.833 0.797 0.756 0.694 0.712 0.579 0.683 0.636 0.572 0.482 0.621 0.557 0.497 0.402 0.564 0.507 0.432 0.335 0.513 0.452 0.376 0.279 0.467 0.327 0.233 0.424 0.284 0.194 0.385 0.247 12% 0.404 0.361 0.322 2 years Present value of net cash flow total Less amount to be invested $111,000 130,000 89,000 62,000 54,000 $446,000 1a. Compute the cash payback period for each project. Cash Payback Period 2 years ✓ ✓ S api 0.658 S 20% Plant Expansion…
Subject:- finance
A company is evaluating three possible investments. The following information is provided by the company: Project A Project B Project C Investment $238,000 $54,000 $238,000 Residual value 0 30,000 40,000 Net cash inflows: Year 1 70,000 30,000 100,000 Year 2 70,000 21,000 70,000 Year 3 70,000 17,000 80,000 Year 4 70,000 14,000 40,000 Year 5 70,000 0 0 What is the payback period for Project A? (Assume that the company uses the straight−line depreciation method.) (Round your answer to two decimal places.) A. 1.8 years B. 2.4 years C. 5.00 years D. 3.4 years
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NPV: Basic Concepts Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000. Assume the cost of capital is 10 percent. The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Break the $810,000 future cash inflow into the three components shown below. Enter all your answers as positive amounts. a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. $ 136,350 ✓ 600,000 ✓ 60,000 ✓ 150,000 ✓ 3. Compute the NPV of the investment. When required, round your answer to the nearest dollar. $ Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV? Net present value represents the present value of future profits ✓
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S A firm evaluates all of its projects by applying the IRR rule. Year 0 1 2 3 Cash Flow -$ 41,000 20,000 23,000 14,000 a. What is the project's IRR? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the required return is 14 percent, should the firm accept the project? a. Internal rate of return b. Project acceptance %
NPV and EVA A project cost $3.2 million up front and will generate cash flows in perpetuity of $270,000. The firm's cost of capital is 8%. a. Calculate the project's NPV. b. Calculate the annual EVA in a typical year. c. Calculate the overall project EVA. a. The project's NPV is $. (Round to the nearest dollar.) ibra culat ource Enter your answer in the answer box and then click Check Answer. Check Ans udy Clear All 2 parts remaining Lation Tools> pe here to search

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