Question 38Assuming the reinvestment rate is 5%, in order for the Annual Compound Growth Rate of Capital toequal the Internal Rate of Return, which of the following statements is correct?IRR=n0 $1 $2$3$4$5 $Investment$(1,000,000)80,00083,33386,66788,6671,224,66710.70%The after tax reinvestment rate would have to be higher than the IRRThe after tax reinvestment rate would have to be lower than the IRRThere is not enough information to answer this questionThe after tax reinvestment rate would have to be equal to the IRR

Annual compounded growth rate of the capital refers to the rate of return from initial investment…

Answered: Question 38 Assuming the reinvestment…

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 content area top Part 1 Assuming a 1-year, money market account investment at 2.282.28 percent (APY), a 1.391.39 percent inflation rate, a 2525 percent marginal tax bracket, and a constant $50 comma 00050,000 balance, calculate the after-tax rate of return, the real rate of return, and the total monetary return. What are the implications of this result for cash management decisions? Question content area bottom Part 1 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax rate of return is 1.711.71%. (Round to two decimal places.) Part 2 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax monetary return is $855855. (Round to the nearest dollar.) Part 3 Given an after-tax return of 1.711.71% and an inflation rate of…
What is the present value of an investment with the following cash flows? Year 1 $14,000 Year 2 $20, 000 Year 3 $30,000 Year 4. $ 43,000 Year 5. $ 57,000 Use a 7% discount rate, and round your answer to the nearest $1. a. $128, 487 b. $107, 328 c. $112, 346 d. $ 153, 272
ces Year 0 1 Cash Flow (A) -$430,000 41,500 2 64,500 3 81,500 4 545,000 Cash Flow (B). -$ 42,500 20,900 12,800 21,100 17,900 The required return on these investments is 10 percent. a. 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. b. 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. c. 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. d. 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. e. Based on your answers in (a) through (d), which project will you finally choose? a. Project A Project B b. Project A Project B years years Q Search < Prev 5 of 5 Next L
Answer all the questions QUESTION 1 Questions a. After-tax cash flows for two mutually exclusive projects (with economic lives of four years each) are: Y Year Project X Project K(12,000) 5,000 01234 5,000 5,000 5,000 i. ii. iii. K(12,000) 0 0 0 25,000 The company's cost of capital is 10 percent. Compute the following: The internal rate of return for each project. The net present value for each project. Which project should be selected? Why? b. A firm is considering the purchase of an automatic machine for K6,200. The machine has an installation cost of K800 and zero salvage value at the end of its expected life of five years. Depreciation is by the straight-line method with the half-year convention. The machine is considered a five-year property. Expected cash savings before tax is K1,800 per year over the five years. The firm is in the 40 percent tax bracket. The firm has determined the cost of capital (or minimum required rate of return) as 10 percent after taxes. Should the firm…
Assignment: Chapter 11 Cost of Capital Attempts 2. An overview of a firm's cost of debt Keep the Highest/3 To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% (2+T)od of four years. Its marginal federal-plus-state tax rate is 40%. TWC's after-tax cost of debt is (rounded to two decimal(1-T) At the present time, Three Waters Company (TWC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal- plus-state tax rate of 40%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to tw decimal places)? O4.22% O 3.80 % O 5.06% 4.85%
Year 0123 Cash Flow -$ 27,000 11,000 14,000 10,000 The appropriate discount rate is 16 percent. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % Should the firm accept the project? O Reject O Accept
Investment End of Year A B C 1 $ 13,000 $ 18,000 2 13,000 3 13,000 4 13,000 5 13,000 $ 13,000 6 13,000 54,000 7 13,000 8 13,000 9 13,000 10 13,000 18,000 Assuming an annual discount rate of 23 percent, find the present value of each investment. a. What is the present value of investment A at an annual discount rate of 23 percent? b. What is the present value of investment B at an annual discount rate of 23 percent? c. What is the present value of investment C at an annual discount rate of 23 percent?
Year 2 3 4 O 1 O $4.404.83 O $4.162.90 O $3.811.27 O $4.280.07 O $3,622.02 Assuming that the relevant cost of capital for both projects is 10%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 21%, while its cost of capital is 10 percent. Given this information, determine the modified net present value (MNPV) for Project A. Project A Cash Flow $10,000 00 $3.000.00 $ 4.000.00 $5,000.00 $3,000.00 Project B Cash Flow $11,000.00 $5.000.00 $4,000.00 $4,000.00 $3,000.00
Consider the following project: Period 0 1 2 3 Net cash flow −275 0 96.55 327.48 The internal rate of return is 17%. The NPV, assuming a 17% opportunity cost of capital, is exactly zero. Calculate the expected economic income and economic depreciation in each year. (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Investment Opportunity Cash Flows in $ 1 3 1,100 $ (500) $ Suppose you are presented with the investment opportunity described in the table above Assume the applicable annual interest rate is 4.75% Calculate the NPV of this investment. Round your answer to two decimals (Do not include the S-sign in your answer, enter negative values with a minus sign and not in parentheses) Year Benefits Costs 2731.16 0 $ $ 350 $ $ (1,100) $ (1,300) $ 2 500 $ (1,500) $ 4 1,500 $ (400) 5 5,000
P 9-1 Investment Scenarios (LO 9-3) Arkansas Best Freightways is considering a purchase of three different potential trucks. it is considering three different investment scenarios and their respective cash flows. Arkansas Best Freightways use a cost of capital of 9 percent to evaluate the investments. Year Year 0 (today) Year 1 Year 2 Year 3 Year 4 Buy new truck Increased profits Increased profits Increased profits Increased profits Net cash flows over life (not discounted) Investment 1 (85,000) 25,000 25,000 25,000 25,000 $ Investment 2 (105,000) 20,000 30,000 40,000 50,000 Required: 1. Calculate the net cash flows (not discounted) over the life of the three investments (years 0 to 4). (Negative amounts should be entered using a minus sign.) Answer is complete and correct. Investment 1 15,000 Investment 2 $ Investment 3 (125,000) 40,000 30,000 20,000 10,000 Investment 3 (25,000) 35,000 S Cost of Capital 9%
Question 4 Mooradian Corporation estimates that its weighted average cost of capital is 17.8 percent. The company is considering two mutually exclusive projects whose after-tax cash flows are as follows: Year 0 1 2 3 4 O 42.11%; Yes O 43.11%; Yes What is the modified internal rate of return (MIRR) of the project with the highest NPV? Should this project be accepted? 44.11%; No 45.11%; Yes Project S CF ($3,172) $2,950 $2,766 $1,990 $1,931 O 45.11%; No Project L CF ($4,938) $1,552 $2,468 $4,409 $2,035

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