Suppose your firm has limited capital to invest in new R&D. Two lines of innovation (referred to as projects) have been proposed by managers. Project 1 costs $120,000 up front today, but generates $50,000 in additional profits at the end of each of the next 4 years. Project 2 costs $90,000 in upfront costs, generating an additional $50,000 in profits at the end of each of the next three years. Assume a discount rate of 10%. which of the following best characterizes how the firm ought to prioritize the projects? O Prefer project 1 to project 2 because project 1 has a higher B/C Ratio. O Prefer project 2 to project 1 because project 2 has a higher NPV. O Prefer project 2 to project 1 because project 2 has a higher B/C Ratio. O Prefer project 1 to project 2 because project 1 has a higher NPV.

Suppose your firm has limited capital to invest in new R&D. Two lines of innovation (referred to as projects) have been proposed by managers. Project 1 costs $120,000 up front today, but generates $50,000 in additional profits at the end of each of the next 4 years. Project 2 costs $90,000 in upfront costs, generating an additional $50,000 in profits at the end of each of the next three years. Assume a discount rate of 10%. which of the following best characterizes how the firm ought to prioritize the projects? O Prefer project 1 to project 2 because project 1 has a higher B/C Ratio. O Prefer project 2 to project 1 because project 2 has a higher NPV. O Prefer project 2 to project 1 because project 2 has a higher B/C Ratio. O Prefer project 1 to project 2 because project 1 has a higher NPV.

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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You are considering the following two mutually exclusive investment opportunities. If your cost of capital is 13%, which is better. Explain your reasoning and support numerically. Capital is not rationed. Opportunity A would cost $1000 and return $400 per year for 4 years. Opportunity B would cost $2200 and would return $1000 per year for 3 years.
Consider the following project data. A marketing study that costs $200 will be conducted at t = 0. The best estimate now is that there is a 70 percent chance that the study will indicate potential and a 30 percent chance that it will not. If the study indicates potential, the firm will spend $500 at t = 1 to start production. If the firm starts production, the firm is confident that cash inflows will be $1,000 annually for two years (t=2 and 3). If the appropriate cost of capital is 10 percent, what is the project's expected NPV to the nearest dollar? A) $1,300 B) $923 C) $646 D) $586 E) $446
Give typing answer with explanation and conclusion What is the change in the NPV of a one-year project if fixed costs are increased from $400 to $600, assuming the firm is profitable, has a 21% tax rate, and a 12% cost of capital.
The best example of a well-stated, specific financial objective is to increase ROA (return on asset) by 0.5 percent annually. maximize total company profits and return on investment. achieve lower costs than any other industry competitor. gradually boost market share from 10 percent to 15 percent over the next several years.
Sunland Division's operating results include: controllable margin of $280000, sales totaling $1400000, and average operating assets of $800000. Sunland is considering a project with sales of $100000, expenses of $84000, and an investment of average operating assets of $200000. Sunland's required rate of return is 10%. Should Sunland accept this project? O Yes, ROI will drop by 6.6% which is still above the minimum required rate of return. O Yes, ROI still exceeds the cost of capital. O No, the return is less than the required rate of 10%. O No, ROI will decrease to 8%. Save for Later O i 20 2 Attempts: 0 of 1 used Submit Answer
Keane & Co plc is considering two possible investments. The company requires an Accounting Rate of Return of 12% and payback within 2 years. It has a cost of capital of 12%. Forecast sales and production units Year 1 Year 2 Year 3 Year 4 Contribution per unit Fixed cost per year Initial investment Residual (scrap) value Accounting Rate of Return Internal Rate Return Discount factors at 12% are: Year 1 Year 2 Year 3 Year 4 Year 5 0.893 0.797 0.712 0.636 0.567 Project J 60,000 110,000 80,000 50,000 £40 £800,000 £7,600,000 £300,000 9.5% 8% Project K 30,000 24,000 20,000 12,000 £120 £700,000 £5,500,000 £150,000 19% 18%
Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and a $16,500 salvage value. The machine will lower operating costs by $18,000 per year and increase sales volume by 1,000 units per year. The company earns a contribution margin of $3.00 per unit. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the company’s required rate of return is 17%, the minimum dollar value per year that must be provided by the machine’s qualitative benefits to justify the $100,000 investment is closest to: Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.
use excel 4. A firm is considering a new project that will generate cash revenue of $1,300,000 and cash expenses of $700,000 per year for five years. The equipment necessary for the project will cost $300,000 and will be depreciated straight line over four years. What is the NPV if the firm's marginal tax rate is 35% and discount rate is 10%?
When calculating Return on Investment (ROI) we take the benefit/cost x 100. Or as we reviewed in class: ROI= (average annual profit/total investment) x 100. So, if I invest in Fall protection for my company at a cost of $10,000, and for the purposes of calculation, you determine if it saves that company 10% of it's fall- related WC claims annually, the annual benefit would be around $3,000 annually, what would you project your ROI to be? (one best answer) 30% 10% $3,000 I don't need to calculate the ROI, because it is required by law.
Suppose your company needs $18 million to build a new assembly line. Your target debt- equity ratio is .7. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company's weighted average flotation cost, assuming all equity is raised externally? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the true cost of building the new assembly line after taking flotation costs into account? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) a. Flotation cost b. Amount raised GA 5.77 % 19 X
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of 51.54 million per year, growing at a rate of 2.4% per year. Goodyear has an equity cost of capital of 8,7%, a debt cost of capital of 6.7%, a marginal corporate tax rate of 38%, and a debt- equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt equity ratio, what after tax amount must it receive for the plant for the divestiture to be profitable?
Suppose your company needs $17 million to build a new assembly line. Your target debt- equity ratio is .75. The flotation cost for new equity is 10 percent, but the flotation cost for debt is only 7 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. a. What is your company's weighted average flotation cost, assuming all equity is raised externally? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the true cost of building the new assembly line after taking flotation costs into account? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole dollar amount, e.g., 1,234,5667.) a. Flotation cost b. Amount raised %

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