QUESTION 5 Your company is considering to choose one of the two projects: Project Gold and Project Diamond. 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 two projects are provided below. Gold Diamond Cost $485 000 $520 000 Future Cash Flows Year 1 105 850 117 050 Year 2 153 250 162 400 Year 3 225 650 275 500 Year 4 245 000 255 000 Year 5 250 350 260 000 Required: a. Identify which project should your company accept based on Net Present al.un method? 4 /6 rio b. Identify which project should your company accept based on Discounte method if the payback criterion is maximum 2.5 years?

QUESTION 5 Your company is considering to choose one of the two projects: Project Gold and Project Diamond. 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 two projects are provided below. Gold Diamond Cost $485 000 $520 000 Future Cash Flows Year 1 105 850 117 050 Year 2 153 250 162 400 Year 3 225 650 275 500 Year 4 245 000 255 000 Year 5 250 350 260 000 Required: a. Identify which project should your company accept based on Net Present al.un method? 4 /6 rio b. Identify which project should your company accept based on Discounte method if the payback criterion is maximum 2.5 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

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QUESTION 12 You invest $55 000 today into a project with a life of 4 years and which is expected to generate the following cash flows. Year 1. Cashflow 12 000 27 300 2 329 22 000 If you require to invest in projects with a payback period of 2.8 years or less, would this project be suitable? For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial 10pt 27C Rain showers I!! II
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:55 Alpha Company is considering a project with the following cash flows: • Year 0 = (14,800) • Year 16,100 . Year 2= 7,400 • Year 3 = 5,100 • Year 4 = 4,700 What is the payback period?
QUESTION 1 Max Ltd is trying to decide which project should be taken up, out of three possible investments. The initial investment would amount to RM250,000. Scrap value at end would be nil. Cost of capital is 9%. The net cash inflows from the three projects under consideration are: Project A Project C RM RM Period Year 1 Year 2 Year 3 Year 4 Year 5 Total Required: 50,000 60,000 70,000 80,000 100,000 360,000 Project B RM 70,000 100,000 130,000 300,000 80,000 80,000 80,000 80,000 320,000 For each possible project you are required to calculate: (a) Accounting rate of return (ARR) (b) Payback period (PP) (c) Net present value (NPV) (d) Internal rate of return (IRR) (e) Should the project be accepted? Why? Justify your answer in respect of all scenarios.
QUESTION 10 A project will produce operating cash flows of $57,000 a year for 3 years. During the life of the project, inventory will be lowered by $10,000 and accounts receivable will increase by $20,000. Accounts payable will decrease by $5,000. The project requires the purchase of equipment at an initial cost of $90,000. The equipment will be salvaged at the end of the project creating a $17,000 after-tax cash inflow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 12%? $48,772.08 $54,681.35 $56,209.19 $42,908.17 $44,141.41
QUESTION 6 Seaborn Co. has identified an investment project with the following cash flows. Year Cash Flow $950 1,050 1,320 1,200 1 2 3 4 If the discount rate is 10 percent, what is the present value of these cash flows? 3542.76 3578.84 3418.66 4470.00 3847.03 Click Save and Submit to save and submit. Click Save All Answers to save all answers. SEP 28 30 tv ♫ A
QUESTION 4 Max Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $58540. The equipment will have an initial cost of $190150 and have a 5-year life. The salvage value of the equipment is estimated to be $23100. Factors to use for n=5, 1=10% (DO NOT USE ANY OTHER FACTORS OR EQUATIONS) Present Value of an Annuity of $1 Present Value of $1 3.7908 0.6209 6.1051 1.6105 Future Value of an Annuity of $1 Future Value of $1 If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes.
Question 5 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 $186,000 $195,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 86 000 93 000 83 000 75 000 55 000 97 000 84 000 86 000 75 000 63 000 Required: Identify which option of equipment should the company accept based on Profitability Index? Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
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