Question 1 Grey Ltd has provided the following figures for two investment projects, only one of which may be chosen. Project X Project Y Initial outlay 200,000 180,000 Profit for year 1 65,000 35,000 65,000 35,000 75,000 65,000 4 35,000 85,000 Estimated resale value at end of year 4 60,000 40,000 Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%. Required a) Calculate for each project Payback Average Return on Capital Employed Net present value (NPV) i. ii. iii. b) Critically discuss the merits and limitations of payback and NPV (Your answer is to be presented in an essay format NOT Bullet Points)

Question 1 Grey Ltd has provided the following figures for two investment projects, only one of which may be chosen. Project X Project Y Initial outlay 200,000 180,000 Profit for year 1 65,000 35,000 65,000 35,000 75,000 65,000 4 35,000 85,000 Estimated resale value at end of year 4 60,000 40,000 Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%. Required a) Calculate for each project Payback Average Return on Capital Employed Net present value (NPV) i. ii. iii. b) Critically discuss the merits and limitations of payback and NPV (Your answer is to be presented in an essay format NOT Bullet Points)

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

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sales year 1 NIL year 2 RM 50,000 year 3-5 RM 60,000 cost fixed cost year 1-5 RM 6,000 variable cost 20% of sales investment RM30,000 terminal value of investment RM8,000 depreciation 10% of initial investment please prepare the cash flow statement and estimate a. payback period b. net present value (NPV) c. internal rate of return for the project d. profit and loss statement e. compute the average profit for the project life
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# 28 Wau Sdn. Bhd, is evaluating two (2) mutually exclusive projects. The cash flows are as follows Year Year 2 4 5 Project AA (500,000) 50,000 150,000 250,000 200,000 100,000 Project BB (600,000) 200,000 200,000 200,000 200,000 200,000 How long does it take to recover the initial cost of investment for each project? Answer O Project AA = 3 years & Project BB 3.25 years %3D Project AA = 2.5 years & Project BB = 3 years %3D %3D 3.
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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Show solution and process from numbers 123 1. A company’s average operating assets are P220,000 and its net operating income is P44,000. The company invested in new project, increasing average assets to P250,000 and increasing net operating income to P49,550. What is the project’s residual income if the required rat of return is 20%? 2. Gurey Corp. uses an imputed interest rate of 13% in the calculation of residual income. Division Tiffey, which is part of Gurey Corp., had invested capital of P1,200,000 and an ROI of 16%. On the basis of this information, what was Tiffey division residual income? 3. Helo Company has provided the following data: Sales, P5,000,000; Interest expense, P30,000; Total assets, beginning of the year, P185,000; Total assets, end of the year, P215,000; Return on assets, 15.5%; Tax rate, 30%. What is the net income of Helo Co.?
Calculations to determine which – if any – additional investment opportunities should be undertaken. 1. If the projects are divisible 2. If the projects are not divisible .
NPV-Mutually exclusive projects Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The cash flows associated with each are shown in the following table: 13%. a. Calculate the net present value (NPV) of each press. b. Using NPV, evaluate the acceptability of each press. c. Rank the presses from best to worst using NPV. d. Calculate the profitability index (PI) for each press. e. Rank the presses from best to worst using Pl. a. The NPV of press A is $ (Round to the nearest cent.) Data table (Click on the icon here into a spreadsheet.) Initial investment (CF) Year (t) 1 234 5 in order to copy the contents of the data table below 678 Machine A $85,000 $17,700 $17,700 $17,700 $17,700 $17,700 $17,700 $17,700 $17,700 Print Machine B $60,100 Cash inflows (CFt) $11,900 $13,700 $16,400 $18,400 $20,400 $25,100 Done Machine C $130,100 $50,200 $29,900 $20,400 $19,700 $20,200 $30,000 $40,500…
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