QUESTION FIVEYou are considering investing in a new project called Lolis with the following cash flows:Annual Cash Flow(K)40,000120,000Year13150,000150,000180,00045The initial cash outflow amounted to K400,000 and the cost of capital is 10%.Required:a) Calculate the following financial viability indicators:i. Undiscounted payback periodii. Net Present Valuei. Discounted Payback periodProfitability IndexInternal Rate of Returniv.V.b) Comment on whether the project is financial viable or not.(4

Capital Budgeting: Capital budgeting arrives at conclusions about the long-term investment of an…

Answered: QUESTION FIVE You are considering…

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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Consider the following two projects: Cash flows Project A Project B C0�0 −$ 240 −$ 240 C1�1 100 123 C2�2 100 123 C3�3 100 123 C4�4 100 a. If the opportunity cost of capital is 8%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 8%. c. Which one would you choose if the cost of capital is 16%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h. If the opportunity cost of capital is 8%, what is the profitability index for each project? i. Is the project with the highest profitability index also the one with the highest NPV? j. Which measure should you use to choose between the projects?
NPV: Basic Concepts Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000. Assume the cost of capital is 10 percent. The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: 1. Break the $810,000 future cash inflow into the three components shown below. Enter all your answers as positive amounts. a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. $ 136,350 ✓ 600,000 ✓ 60,000 ✓ 150,000 ✓ 3. Compute the NPV of the investment. When required, round your answer to the nearest dollar. $ Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV? Net present value represents the present value of future profits ✓
QUESTION 4 Hook n' Crook, Inc. has a 2-year project with the following cash flows: I=-$1,000, C₁ = +$5489, and C₂ =-$-4490. Find the value of the LARGEST IRR of this project. Note: If you wish, you may use the calculator to find one of the IRRS, and then use a method given in your class notes to find the other one, so you can determine which one is the largest number. Give the answer as a percent with two decimals; e.g., 23.24 and, as always, do not include symbols in your answer.
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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
Compute the discounted payback statistic for Project y and recommend whether the firm should accept or reject the project with the cash flows shown as follows
Problem 3: A banking service project has an investment of $875,000. It has profits of $335,000 in years 1,3,5,7, and 9, and $157,000 in years 2,4,6,8,and 10. Assume the required rate of return is 20% and the inflation rate is 2.5%. Using the Net Present Value method, determine if the banking company should invest in this project.
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QUESTION 7 A company is considering to invest in a project that is expected to yield the following cash flows; the firm's required rate of return from the project is 10%. Initial Outflow = $200,000 Cash Flow Year 1 = $80,000 Cash Flow Year 4 = $160,000 Cash Flow Year 5 = $120,000 What is the project's NPV? O 50,310.77 O 49,689.85 O 56,519.98 O 42,859.72 O 36,029.58

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