QI/ Ipswich Corporation is considering an investment opportunity with the expected net cash inflows of $300,000 for four years. The residual value of the investment, at the end of four years, would be $70,000. The company uses a discount rate of 14%, and the initial investment is $290,000. Calculate the NPV of the investment. Present value of an ordinary annuity of $1: 12% 13% 14% 15% 00.893 0.8850.877 0.87 1.69 1.668 1.6471.626 32.402 2.3612.3222.283 3.037 2.974 2.9142.855 3.605 3.5173.4333.352 Present value of $1: 12% 13% 14% 15% 00.893 0.8850.877 0.87 20.7970.783 0.769 0.756 30.7120.6930.675 0.658 0.6360.6130.592 0.572 0.5670.543 0.519 0.497

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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Assignment 3
Ch.5
Name /
ID/
Section /
Q1/ Ipswich Corporation is
investment opportunity with the expected net cash
inflows of $300,000 for four years. The residual
value of the investment, at the end of four years,
would be $70,000. The company uses a discount rate
of 14%, and the initial investment is $290,000.
Calculate the NPV of the investment.
considering
an
Present value of an ordinary annuity of $1:
12% 13% 14% 15%
0.893 0.885 0.877 0.87
1.69 1.668 1.647 1.626
2.402 2.361
.322 2.283
3.037 2.974 2.914 2.855
Present value of $1:
12% 13% 14% 15%
0.893 0.885 0.877 0.87
Q2/ A company is evaluating an investment. The
company uses the straight-line method of
depreciation. Use the following information to
compute the accounting rate of return. Show your
calculations and round to one decimal place.
Project
SR875,000
Investment
Residual value
Operating income
Year I
120,000
Year 2
120,000
Year 3
120,000
Year 4
120,000
Year S
Q3/ Your grandfather would like to share some of his
fortune with you. He offers to give you money under
one of the following scenarios (you get to choose):
1. $8,550 per year at the end of each of the next seven
years
2. $48,350 (lump sum) now
3. $100,250 (lump sum) seven years from now
Requirements
1. Calculate the present value of each scenario using
an 8% discount rate. Which scenario yields the
highest present value? Round to nearest whole
dollar.
Transcribed Image Text:Assignment 3 Ch.5 Name / ID/ Section / Q1/ Ipswich Corporation is investment opportunity with the expected net cash inflows of $300,000 for four years. The residual value of the investment, at the end of four years, would be $70,000. The company uses a discount rate of 14%, and the initial investment is $290,000. Calculate the NPV of the investment. considering an Present value of an ordinary annuity of $1: 12% 13% 14% 15% 0.893 0.885 0.877 0.87 1.69 1.668 1.647 1.626 2.402 2.361 .322 2.283 3.037 2.974 2.914 2.855 Present value of $1: 12% 13% 14% 15% 0.893 0.885 0.877 0.87 Q2/ A company is evaluating an investment. The company uses the straight-line method of depreciation. Use the following information to compute the accounting rate of return. Show your calculations and round to one decimal place. Project SR875,000 Investment Residual value Operating income Year I 120,000 Year 2 120,000 Year 3 120,000 Year 4 120,000 Year S Q3/ Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose): 1. $8,550 per year at the end of each of the next seven years 2. $48,350 (lump sum) now 3. $100,250 (lump sum) seven years from now Requirements 1. Calculate the present value of each scenario using an 8% discount rate. Which scenario yields the highest present value? Round to nearest whole dollar.
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