Current Attempt in ProgressYour answer is incorrect.Ruth just graduated from college. Since she is starting her own business, it's time to upgrade from her clunker to a reliable vehicle.Ruth has the option to purchase a new car for her business at a cost of $21,528 (life of 7 years with no salvage value), estimating that itwould help her bring in additional annual net operating cash flows of $10,400 over the life of the car.Determine the simple payback period and the IRR for this investment. Ruth expects her business income to be subject to a 30% taxrate. (Round simple payback period to 3 decimal places, e.g. 15.256 and IRR to 2 decimal places, e.g. 15.25%. Round intermediate calculationsto 2 decimal places, eg. 15.25.)Simple payback periodIRRyears%

Payback period is a financial metric used to determine how long it takes to recover the initial…

Answered: Ruth just graduated from college. Since…

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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Rachel purchased a car for $17,500 three years ago using a 4-year loan with an interest rate of 10.8 percent. She has decided that she would sell the car now, if she could get a price that would pay off the balance of her loan. What is the minimum price Rachel would need to receive for her car? Calculate her monthly payments, then use those payments and the remaining time left to compute the present value (called balance) of the remaining loan.
Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,530 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,070 and $850, respectively.Alternatively, Mr. Fitch could purchase for $9,960 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,440 and $2,350, respectively.Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.Required Determine the payback period and unadjusted rate of return (use average investment) for each…
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $38,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,500. The grill will have no effect on revenues but will save Johnny's $19,000 in energy expenses. The tax rate is 30%. Required: What are the operating cash flows in each year? What are the total cash flows in each year? Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? (round answers to 2 decimal places)
Please Explain the following thoroughly Include how to find the Book value and formula and how to to find the net cash flow with formula. Ronnie's Custom Cars purchased some fixed assets two years ago for $35,000. The assets areclassified as 5-year property for MACRS. Ronnie is considering selling these assets now sohe can buy some newer fixed assets which utilize the latest in technology. Ronnie has beenoffered $19,500 for his old assets. What is the net cash flow from the salvage value if the taxrate is 34 percent?
Blossom Googal owns a garage and is contemplating purchasing a tire retreading machine for $32.820. After estimating costs and revenues, Blossom projects a net cash inflow from the retreading machine of $4,700 annually for 11 years. Blossom hopes to earn a return of 8% on such investments. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What is the present value of the retreading operation? (Round answer to 2 decimal places, eg. 25.25) Present value 2$ Should Blossom Googal purchase the retreading machine?
Use a financial calculator or computer software program to answer the following questions: a) Melanie is trying to save money for retirement and has a future goal of $750,000 at the end of 20 years. Determine the present value of her goal using a discount rate of 12%. b) How would the present value change if the $750,000 is to be received at the end of 15 years instead? Explain the impact and show your work?
Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,980 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,010 and $840, respectively. Alternatively, Mr. Fitch could purchase for $9,960 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,380 and $2,400, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent. Required a. Determine the payback period and unadjusted rate of return (use average investment) for each…
Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $920,000. Helga has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be as follows: Years 1-6 7 8 9 10 Amount $ 92,000 82,000 72,000 62,000 52,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $820,000. Required: Determine the present value, assuming that Helga desires a 10 % rate of return on this investment. (Assume that all cash flows occur at the end of the year.) Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Future Amount $ 92,000 10% 82,000 10% 72,000 10% 62,000 10% 52,000 10% 820,000 10% n= Present Value Should the restaurant be purchased?
Mary is considering opening a hobby and craft store. Mary plans to operate the business for six years. Mary requires a minimum 6% return on this investment. (Ignore income taxes in this problem). The data pertaining to her investment opportunity are: (see attached image). Mary plans to operate the business for six years. Mary requires a minimum 6% return on this investment. What is the present value factor you will use for cash inflows that come JUST in year 6? Enter your answer to three decimals.
Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and Harold expects to spend about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,500. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,480 per year, including maintenance. Assume a discount rate of 10 percent. Required: Calculate the net present value of Harold’s options. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Advise Harold about which option he should choose.
Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $890,000. Helga has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be as follows: Years 1-6 7 8 9 10 Amount $ 89,000 79,000 69,000 59,000 49,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $790,000. Required: Determine the present value, assuming that Helga desires an 11% rate of return on this investment. (Assume that all cash flows occur at the end of the year.)
Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $42,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $10,500. The grill will have no effect on revenues but will save Johnny’s $21,000 in energy expenses. The tax rate is 30%. Required: a. What are the operating cash flows in each year?b. What are the total cash flows in each year?c. Assuming the discount rate is 10%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

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