The cash flows in the table below represent the potential annual savings associated with two different types of production processes, each of which requires an investment of $40,000. Assume an interest rate of 12%. Compute the equivalent annual worth (AE) of each process and determine which process should be selected. n 0 1 2 3 Process A -$40,000 $19,120 $17,840 $16,560 $15,280 Process B -$40,000 $17,350 $17,350 $17,350 $17,350

The cash flows in the table below represent the potential annual savings associated with two different types of production processes, each of which requires an investment of $40,000. Assume an interest rate of 12%. Compute the equivalent annual worth (AE) of each process and determine which process should be selected. n 0 1 2 3 Process A -$40,000 $19,120 $17,840 $16,560 $15,280 Process B -$40,000 $17,350 $17,350 $17,350 $17,350

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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Draw a cash flow diagram depicting the net cash flows associated with the purchase, operation, and disposition of a synthetic rubber blending machine. The cash flow components are shown below. Your CFD should have only one arrow at any given time period, reflecting the net of that period’s cash flows.
NPV and EVA A project cost $2.5 million up front and will generate cash flows in perpetuity of $240,000. The firm's cost of capital is 9%. a. Calculate the project's NPV. b. Calculate the annual EVA in a typical year. c. Calculate the overall project EVA. a. The project's NPV is $nothing. (Round to the nearest dollar.) b. The annual project EVA in a typical year is $nothing. (Round to the nearest dollar.) c. The overall project EVA is $nothing. (Round to the nearest dollar.)
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Cash payback period, net present value method, and analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Each project requires an investment of $900,000. A rate of 15% has been selected for the net present value analysis. Instructions 1. Compute the following for each product: a. Cash payback period. b. The net present value. Use the present value of $1 table appearing in this chapter (Exhibit 2). 2. Prepare a brief report advising management on the relative merits of each project.
You have been asked by MPAC Ltd to analyse two projects, X and Y. Each project costs £1,000,000, and the company's cost of capital is 10 percent per annum. The expected net cash flows are as follows: Project X £600,000 £500,000 £300,000 £100,000 Project Y £200,000 £300,000 £400,000 £675,000 Year 1 3 4 Required: Calculate the following for each project: i) ii) iii) a) net present value modified internal rate of return discounted payback period b) Which project(s) should be accepted if they are independent? Explain why. c) How might a change in the cost of capital produce a conflict between the net present value and internal rate of return rankings of these two projects? Would this conflict exist if the cost of capital were changed? Why does the conflict exist? Discuss critically.
BIASA Corporation has four investment projects with the following costs and estimated expected rates of return (i.e. internal rates of return estimated from the discounted cash flow analysis): Cost IRR Project 1 $2,900,000 17% Project 2 $3,200,000 15% Project 3 $3,500,000 13% Project 4 $2,700,000 12% The company has a capital budget set for the coming year of $4 million, i.e. the maximum capital expenditure is set at $4 million. The company estimates that it can issue debt at a before-tax cost of 8% and its tax rate is 30%. The company can also issue preference shares at $45 per share, which pay a constant dividend of $4.50 per share per year. The company’s stock currently sells at $33 per share. The next dividend D1 is expected to be $3.20 and the dividend is expected to grow at a constant rate of 5% per year. The company’s capital structure consists of 75% ordinary shares 20% debt and 5% preference shares. (a) Which project(s) should…
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A company is considering a project with a cost of $248,000. The cash flows for the project are provided in the table below. If the required return for the project is 14.2%, what is the project's NPV? Year CF 1 $68,500 2 $72,800 3 $75,300 4 $81,400 5 $78,200 $81,422 $128,200 $6,481 $222,838 $254,481
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