Shenzhen Industries is preparing to invest in the U.S. There are two potential projects that are believed to create positive returns for the company. The initial capitals for both projects are estimated at USD 2,000,000. Unfortunately, due to budget constraint, Shenzhen Industries has to drop one of the projects. The following table presents the estimated discount rates and after-tax future cash flows of each project for 5 consecutive years. Choose the most feasible project for the company by using the Net Present Value (NPV) approach. Cash flows Project : Chicago Project : Florida USD 600,000 USD 600,000 USD 600,000 USD 600,000 USD 600,000 Year 1 USD 1,000,000 USD 800,000 USD 600,000 USD 400,000 USD 200,000 Year 2 Year 3 Year 4 Year 5 Discount rate 9% 15%

Shenzhen Industries is preparing to invest in the U.S. There are two potential projects that are believed to create positive returns for the company. The initial capitals for both projects are estimated at USD 2,000,000. Unfortunately, due to budget constraint, Shenzhen Industries has to drop one of the projects. The following table presents the estimated discount rates and after-tax future cash flows of each project for 5 consecutive years. Choose the most feasible project for the company by using the Net Present Value (NPV) approach. Cash flows Project : Chicago Project : Florida USD 600,000 USD 600,000 USD 600,000 USD 600,000 USD 600,000 Year 1 USD 1,000,000 USD 800,000 USD 600,000 USD 400,000 USD 200,000 Year 2 Year 3 Year 4 Year 5 Discount rate 9% 15%

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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ABC Corp is considering a new project: the project requires an initial cost of $375,000, and will not produce any cash flows for the first two years. Starting in year 3, the project will generate cash inflows of $528,000 a year for three years. This project has higher risk compared to other projects the firm has, so it is assigned with a discount rate of 18%. What is the project's net present value? $773,016.1 $218,693.6 $449,487.3 $824,487.3 Oa b. C₂ d.
Calculate the terminal value of the Canopy project in 2003 and the adjusted free cash flow value for 2003.
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. A is considering the purchase of two alternative machinery. Machine 1 has an expected life of 5 years, will cost Rs. 100 lacs, and will produce net cash flows of Rs.30 lacs per year. Machine 2 has a life of 10 years, will cost Rs.140 million, and will produce net cash flows of Rs.25 million per year. It plans to use the chosen machine for only 10 years. Inflation in operating costs, machinery costs, is expected to be zero, and the company’s cost of capital is 12%. Which machine is acceptable as the better project? What is the equivalent annual annuity cost for each machine and by this criterion, which machine is acceptable?
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A company is considering two potential projects. Project Alpha requires an investment of 1,000,000 and will return 185,464.74 per year at the end of each of the next six years. It has an IRR of α%. Project Beta requires and investment of 860,725 and will return 300,000 at the end of year one and 600,000 at the end of year two. It has an IRR of β%. Calculate α-β.
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The US based company is investing in a 2-year project in Europe. The initial investment is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is €8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the required rate of return of the project is 14%, calculate the NPV of the project in dollars. (A) The NPV of the project in dollars is $1,773.62. (B) The NPV of the project in dollars is $1,704.32. (C) The NPV of the project in dollars is $1,418.90. (D) The NPV of the project in dollars is $1,989.74.

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