Question 2: Bunnings Ltd is considering to invest in one of the two followingprojects to buy a new equipment. Each equipment will last 5 years and have nosalvage value at the end. The company's required rate of return for allinvestment projects is 8%. The cash flows of the projects are provided below.Equipment 1$186,000Equipment 2$195,000CostFuture Cash Flows| 97 00084 000Year 186 000Year 293 000Year 383 00086 000Year 475 00075 000Year 555 00063 000Required:a) Identify which option of equipment should the companyaccept based on Profitability Index?b) Identify which option of equipment should the companyaccept based on discounted pay back method if the paybackcriteria is maximum 2 years?

Capital budgeting indicates the evaluation of the profitability of possible investment and projects…

Question 2: Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company's required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 $186,000 Equipment 2 $195,000 Cost Future Cash Flows 86 000 93 000 83 000 75 000 55 000 97 000 Year 1 Year 2 84 000 86 000 75 000 Year 3 Year 4 Year 5 63 000 Required: a) Identify which option of equipment should the company accept based on Profitability Index? b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criteria is maximum 2 years?

Question 2: Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company's required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 $186,000 Equipment 2 $195,000 Cost Future Cash Flows 86 000 93 000 83 000 75 000 55 000 97 000 Year 1 Year 2 84 000 86 000 75 000 Year 3 Year 4 Year 5 63 000 Required: a) Identify which option of equipment should the company accept based on Profitability Index? b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criteria is maximum 2 years?

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

See similar textbooks

Related questions

Q: Vijay

A: To calculate the Net Present Value (NPV) of the project and the Internal Rate of Return (IRR), we'll…

Q: ta. What is the project's payback?

A: It refers to the time period that is required to get an amount invested in a project with some…

Q: Question 1 Next Gen Corporation is considering two investment opportunities. The company can choose…

A: For Selecting the best project from the others we use various techniques like the payback period…

Q: Duo Corporation is evaluating a project with the following cash flows: Year Cash Flow e -$ 16,000 1…

A: MIRR- This is a modification of IRR and it is based on the assumption that positive cash flows are…

Q: QUESTION 1 a) A project requires the purchase of a new piece of machinery. choose between three…

A: Payback period is the period up to which the initial cost of the investment is recovered back. It is…

Q: Hart Corp. is considering a project that has the following cash flow data. What is the project's…

A: The modified internal rate of return is another technique or method under capital budgeting…

Q: The following are the cash flows of two projects: Project Project A Year 0 1 2 3 4 $(370) 200 200…

A: Profitability index (PI) is an important capital budgeting tool. We use this tool to determine if a…

Q: working as a finance manager for Fire Fox Transport Ltd. The company is considering to invest in one…

A: The NPV and Discounted payback period can be calculated as follows :

Q: Q2 / An investment project with a cost of 160,000 dinars, a useful life of 5 years, an amount of…

A: According to Double diminishing balance, depreciation is calculated as twice the value of cost of…

Q: Izmir Estate is evaluating a new project. The initial investment required is $87,619,003.65 and the…

A: MIRR provides the rate of return on the investment.MIRR assumes that cash flows are reinvested at a…

Q: a) Appraise the two Project using the following methods of investment appraisal: i. Payback period…

A: Payback period is the period which are required by the company in order to recover the costs which…

Q: ealthy Food Ltd is considering to invest in one of the two following projects to buy new machinery.…

A: NET PRESENT VALUE Net Present value is one of the Important Capital Budgeting Technique. Net…

Q: a) What is the payback period for this project? b) If a hurdle rate of 20% is considered; what is…

A: Payback Period: It is one of the methods used in capital budgeting to determine the period in which…

Q: New Age Ltd is considering investing in one of the two following projects to buy a new assembly…

A: Interest Rate 9% Salvage Value 0 Time Period (Years) 5 Year Assembly Line 1 Assembly…

Q: Year Cash Flow (A) Cash Flow (D) $- -$ 0 348,000 51,000 1234 47,000 24,200 67,000 22,200 19,700…

Q: Iceland Corporation Limited is considering investing in one of two machines – A or B. The initial…

A: ARR is the accounting rate of return calculated by dividing average accounting profit by initial…

Q: Redwood Corporation is considering two alternative investment proposals with the following data:…

A: Payback period:— It is the time period in years that is required to recover all the cash outflows…

Q: Malema Pty Ltd, a furniture manufacturer, has been offered an opportunity t3 accept a project that…

A: Cash Flow for year 1 = cf1 = 7000Cash Flow for year 2 = cf2 = 8000Cash Flow for year 3 = cf3 =…

Q: Question 3: Your Company is considering to choose one of the two projects: Project A and Project B.…

A: Excel Spreadsheet:

Q: Juniper Corporation is considering two alternative investment proposals with the following data:…

A: Payback period = Investment/estimated annual net cash inflows for n years.

Q: An investment of $165,000 yields a net annual income of $45,000 for 5 years with no salvage value.…

A: The rate at which cash flows from the project are reinvested to earn return is known as reinvestment…

Q: a) Assume the Year 6 cash flows are $600 and is expected to be $600 in perpetuity. What valued does…

A: The value of SBW Ventures will be the sum of present values of all future cash flows. The cash flows…

Q: A firm evaluates all of its projects by applying the IRR rule. Year 0 1 2 3 Cash Flow -$ 152,000…

A: IRR is the rate of return on the investment.It is the rate of return where NPV = 0If the required…

Q: Elite Apparel Inc. is considering two Investment projects. The estimated net cash flows from each…

A: Payback period is the period required to recover initial investment of the project and that is the…

Q: Wau Sdn. Bhd, is evaluating two (2) mutually exclusive projects. The cash flows are as follows Year…

A: Year Project AA Project BB 0 -500000 -600000 1 50000 200000 2 150000 200000 3 250000 200000…

Q: kau.3

A: To determine the cash payback period for the investment, you need to find out how long it takes for…

Q: None

A: a. Discounted Payback Period CriterionStep 1: Calculate the Present Value of Each Cash FlowTo…

Q: Juniper Corporation is considering two alternative investment proposals with the following data:…

A: Accounting rate of return (%) =( Average annual profit/initial investment) ×100

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Porter Company is analyzing two potential Investments. Project X $ 97,090 Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Multiple Choice If the company is using the payback period method, and it requires a payback of three years or less, which project(s) should be selected? O 32,500 32,500 32,500 0 Both X and Y are acceptable projects. O Project Y. Project Y $ 77,000 Project Y because it has a lower Initial Investment. Project X 5,700 34,500 34,500 25,000 Neither X nor Y is an acceptable project.
Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. The cash flows of the projects are provided below. Equipment 1 Equipment 2 Cost $186000 $195000 Future Cash Flow Year 1 86000 97000 Year 2 93000 84000 Year 3 83000 86000 Year 4 75000 75000 Year 5 55000 63000 Required:a) Identify which option of equipment should the company accept based on Profitability Index? b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
i need the answer quickly
None
Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1Cost $175,000 Project 2 Cost $185,000 Future Cash Flows For Project 1 Year 1 Year 2 Year 3 Year 4 Year 5 is 76,000 83,000 67,000 65,000 55,000 respectively. For Project 2 it is 87,000 78,000 69,000 65,000 57,000 for Year 1 Year 2 Year 3 Year 4 Year 5 resp. Required: a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2 decimal places only for simplification) b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict
Question Completion Status: The XYZ Company is considering investing in two alternative projects: Project 1 W $400,000 5 B. C. D. Investment Useful life (years) Estimated annual net cash inflows for useful life Residual value Depreciation method Required rate of return What is the payback period for Project 2? 16.00 years 4.00 years 5.00 years 4.70 years $100,000 $25,000 Straight- line 12% Project 2 $250,000 6 $50,000 $15,000 Straight- line 8%
A company that manufactures magnetic flow meters expects to undertake a project that will have the cash flows estimated. First cost, $ -810,000 Equipment replacement cost in year 2, $ -300,000 Annual operating cost, $/year Salvage value, $ Life, years -860,000 250.000 4 an interest rate of 10% per year, what is the equivalent annual cost of the project? Find the AW value using tabulated factors. e equivalent annual cost of the project is $-820000
Question 2: SABIRCO wants to investigate the following project. Initial investment $1,000,000 Annual income $200,000 in year 1 and increase every year by 40,000. No salvage value MARR = 10% a) What is the discounted payback period? b) Assuming the project to be used for 8 years. What is the end balance of the project at end of year 8?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS