Solve the problem below. Two project proposals have been presented to XYZ Corporation. Project A requires an initial investment of Php 80,000.00 and the expected annual cash return is Php 30,000.00 for 4 years. Project B requires an initial investment of Php 60,000.00 and the expected annual cash return is Php 20,000.00 for 5 years. a. What is the payback period of each project? b. Compute for the net present value of each project if the cost of capital is 10%. c. Which project should XYZ Corporation accept? Why?

Solve the problem below. Two project proposals have been presented to XYZ Corporation. Project A requires an initial investment of Php 80,000.00 and the expected annual cash return is Php 30,000.00 for 4 years. Project B requires an initial investment of Php 60,000.00 and the expected annual cash return is Php 20,000.00 for 5 years. a. What is the payback period of each project? b. Compute for the net present value of each project if the cost of capital is 10%. c. Which project should XYZ Corporation accept? Why?

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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Ryan Chesser is considering investing in one of the following two projects. Either project will require an invfestment of $60,000. The expected cash flows for the two projects follow: Year Project A Project B 1 18,000 18,000 24,000 24,000 30,000 36,000 4 60,000 18,000 5 60,000 18,000 a What is the payback period for each project If rapid payback is important, which project should be chosen? What is the accounting rate of return for each project? d. Which project should be chosen based on the accounting rate of return?
Consider a project with free cash flow in one year of $139,138 or $187,005, with either outcome being equally likely. The initial investment required for the project is $110,000, and the project's cost of capital is 23%. The risk-free interest rate is 7%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way that is, what is the initial market value of the unlevered equity? c. Suppose the initial $110,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, and what is its initial value according to M&M? a. What is the NPV of this project? The NPV is $ 22578. (Round to the nearest dollar.) b. Suppose that to raise the funds for the initial investment, the project is sold to…
A project requires an initial investment of $225,000 and is expected to generate the following net cash inflows: Year 1: $95,000 Year 2: $80,000 Year 3: $60,000 Year 4: $55,000 Required: Compute net present value of the project if the minimum desired rate of return is 12%. Calculate the following: Payback Period NPV IRR
. calculate the net present value of the following: Project A requires an initial investment of $1,000 and is expected to generate cash flows of $400 per year for 3 years
Consider two investment projects, both of which require an upfront investment of $10 million and pay a constant positive amount each year for the next 12 years. Under what conditions can you rank these projects by comparing their IRRS? (Select the best choice below.) A. Ranking by IRR will work in this case so long as the projects' cash flows do not decrease from year to year. B. Ranking by IRR will work in this case so long as the projects' cash flows do not increase from year to year. C. Ranking by IRR will work in this case so long as the projects have the same risk. D. There are no conditions under which you can use the IRR to rank projects.
You are evaluating a project that will cost $502,000, but is expected to produce cash flows of $127,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 10.7% and your company's preferred payback period is three years or less. a. What is the payback period of this project? b. Should you take the project if you want to increase the value of the company? a. What is the payback period of this project? The payback period is years. (Round to two decimal places.) b. Should you take the project if you want to increase the value of the company? (Select from the drop-down menus.) If you want to increase the value of the company you take the project since the NPV is will not will
Suppose that a project requires an initial investment of 20 000 USD at the begynning of year 1. The project is expected to return 25 000 USD at the end of year 1. The required rate of return for the project is 20%. Calcualte the Net Present Value of the project as well as the Internal Rate of Return.
(Net present value calculation) Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $105,000 and will generate net cash inflows of $21,000 per year for 8 years. a. What is the project's NPV using a discount rate of 8 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 16 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not? a. If the discount rate is 8 percent, then the project's NPV is $ (Round to the nearest dollar.)
You are responsible to manage an IS project with a 4-year horizon. The annal cost of the project is estimated at $40,000 per year, and a one-time costs of $120,000. The annual monetary benefit of the project is estimated at $96,000 per year with a discount rate of 6 percent. a. Calculate the overall return on investment (ROI) of the project. b. Perform a break-even analysis (BEA). At what year does break-even occur?
Television is considering a project with an initial outlay of $X (you will have to determine this amount). It is expected that the project will produce a positive cash flow of $54,000 a year at the end of each year for the next 13 years. The appropriate discount rate for this project is 8 percent. If the project has an internal rate of return of 13 percent, what is the project's net present value? *** a. If the project has an internal rate of return of 13%, then the project's initial outlay is $ the nearest cent.) (Round to
You are considering a project with an initial cash outlay of $100,000 and expected free cash flows of $25,000 at the end of each year for 6 years. The required rate of return for this project is 10 percent. What is the project’s payback period? What is the project’s NPV ? What is the project’s PI ? What is the project’s IRR ?
A project will have an initial investment requirement of $5,000. Then, it will generate 5 years of $1,000 per year, with all cash expected to be received at the end of the year. The discount rate is 10%. The hurdle rate is the same as the discount rate, 10%. 9.What is the NPV? 10.What is the Payback? 11.What is the IRR. 12.Do you accept this project? 13.At WHAT HURDLE RATE would the project result in an NPV of exactly $0?

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