Q2: A town in northern Colorado is planning on investing in a water purification system. Three mutually exclusive systems have been proposed, and their capital investment costs and net annual benefits are the following (salvage values are negligible). System EOY A -$160,000 -$245,000 -$200,000 1 80,000 120,000 80,000 2 70,000 100,000 80,000 3 60,000 80,000 80,000 4 50,000 60,000 80,000 If the town's MARR is 10% per year, use the B-C ratio method to Calculate which system is best.

Q2: A town in northern Colorado is planning on investing in a water purification system. Three mutually exclusive systems have been proposed, and their capital investment costs and net annual benefits are the following (salvage values are negligible). System EOY A -$160,000 -$245,000 -$200,000 1 80,000 120,000 80,000 2 70,000 100,000 80,000 3 60,000 80,000 80,000 4 50,000 60,000 80,000 If the town's MARR is 10% per year, use the B-C ratio method to Calculate which system is best.

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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Question 1 Downtown Plc is in the process of evaluating two alternative projects, which are mutually exclusion. The projects will both required two different manufacturing machines and, both machines will have no residual values at the end of the project. Due to certain restrictions, only one of the two projects can be implemented. The following estimated cash flows over the life of the two projects are provided below: Cash Flows Year Project A Project B £(millions) £’(millions) 0 -600 -650 1 250 200 2 250 200 3 250 300 4 100 250 The company’s cost of capital is 10%. Calculate the net present value (NPV) of both projects and recommend with reasons which project should be implemented by
There are three potential projects . All with initial cost of 1,900,000. Which project should quark accept ? Project n Project m Project o None of the projects
(M1) Dwight Donovan, the president of Donovan Enterprises, is considering 2 investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $400,000 and for Project B are $160,000. The annual expected cash inflows are $126,000 for Project A and $52,800 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Donovan Enterprises’ desired rate of return is 8 percent. Your task, as Senior Accountant, is to use your knowledge of net present value and internal rate of return to identify the preferred method and best investment opportunity for the company and present your results to Dwight Donovan. Use…
Alternative Capital Investments The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $860,000. The estimated net cash flows from each project are as follows: Net Cash Flow Year OfficeExpansion Server 1 $240,000 $317,000 2 240,000 317,000 3 240,000 317,000 4 240,000 317,000 5 240,000 6 240,000 The committee has selected a rate of 15% for purposes of net present value analysis. It also estimates that the residual value at the end of each project's useful life is $0, but at the end of the fourth year, the office expansion's residual value would be $300,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792…
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1. Green Rose Inc. is considering these following investments for year 2022: Machine A Machine B Machine C Initial amount 450,000 375,000 425,000 Salvage Value 75,000 67,000 58,000 Cost savings 66,730 73,425 63,950 The following cost are associated to each of the machines: • Inspection cost 3,000 • Installation cost 3.500 • Warranties 2,700 • Testing cost 4,300 • Training 4,500 a) Determine the Net investment of each Machine. b) Determine the accounting rate of return. c) Which of these investments would Green Rose Inc. purse if the required rate of return is 18%?
SHOW YOUR SOLUTION AND CASHFLOW. THANK YOUI! THE LESSON IS ALL ABOUT ALTERNATIVE COSTS. 2. It is proposed to place a cable on an existing pole line along the shore of a lake to connect two points on opposite sides. Land Route Submarine Route Length, miles 10 5 First cost of cable per mile P40,000 P68,000 Annual maintenance per mile 950 3,500 Interest on investment 18% 18% Taxes 3% 3% Net salvage value per mile P12,000 P22,000 Life, years 15 15 Which is more economical?
Problem 2. Based on benefit to cost ratio, determine which project should be chosen. Please work out in excel spreadsheet.
Question 3: The Muscat Electric Company ventures to a new project in the eastern part of the capital city which is a 200-kilometer, 300 kV transmission lines. The company has to choose between an Overhead Cable Transmission System and Underground Cable Transmission System. Table Q3 shows the initial investment for each type, the expected revenues during its lifetime which includes the cost savings incurred by underground transmission system over the overhead transmission system. The company has estimated a salvage value for each type of transmission to be 5% of the initial investment. As a company cost of capital is 8% per year. Using the following techniques for capital investment appraisal, perform the following; (i) Discounted payback period; (ii) Net present value NPV; (iii) Internal rate of return IRR. (iv) Determine which of the alternative is acceptable to the company based on the above results. Table Q3: Revenue & Expenses in Million OMR Overhead Underground Items Cable…
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