The expected rate of return for either of the two projects is 12 percent. What is the range of initiall investment (lo) for which Project Billion is more financially attractive than Project Million? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Initial investment

The expected rate of return for either of the two projects is 12 percent. What is the range of initiall investment (lo) for which Project Billion is more financially attractive than Project Million? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Initial investment

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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An investment has an installed cost of $537,800. The cash flows over the four-year life of the investment are projected to be $212,750, $229,350, $196,010, and $144,720, respectively. a. If the discount rate is zero, what is the NPV? (Do not round intermediate calculations.) b. If the discount rate is infinite, what is the NPV? (A negative answer should be indicated by a minus sign.) c. At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV b. NPV c. IRR %
There are two types of projects in the market: A (safer) and B (riskier). At time 1, the payoff of A will be either $500 (probability 0.75) or $300 (probability 0.25). The appropriate discount rate for project A is 12%. The minimum price A can accept is $350. The payoff of B will be either $800 (probability 0.2) or $100 (probability 0.8). The appropriate discount rate for project B is 20%. In this simple economy, there are 90% chance that the project will be A. Evaluate the funding situation, i.e., which type of project will be funded and the price, based on the following scenarios: If a bank can tell whether the entrepreneur is endowed with project A or B, but cannot stop A from switching to B after A has receive the fund. What is the maximum face value of loan that the bank can lend to A without incur any monitoring costs, i.e., A will not have incentive to switch to B given this incentive compatible amount of loan and limited liability.
A project has a forecasted cash flow of $125 in year 1 and $136 in year 2. The interest rate is 8%, the estimated risk premium on the market is 11.25%, and the project has a beta of 0.65. If you use a constant risk-adjusted discount rate, answer the following: a. What is the PV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ Year 1 Year 2 210.68 b. What is the certainty-equivalent cash flow in year 1 and year 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Certainty- Equivalent Cash Flow
Consider these two alternatives. Solve, a. Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR is 15% per year. b. Determine the life of Alternative 1 for which the AWs are equal.
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow -$ 41,000 20,000 23,000 14,000 1 What is the NPV of the project if the required return is 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV At a required return of 11 percent, should the firm accept this project? O Yes O No
Compute the payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 11 percent and the maximum allowable payback is one year. Time: 0 1 2 3 4 5 Cash flow: −100 75 100 300 75 200
Darin Clay, the CFO of MakeMoney.com, has to decide between the following two projects: Project Million 0 -$2,700 10+ 310 2 1,110 3 1,950 Year Project Billion -$10 lo+ 1,150 1,950 3,100 The expected rate of return for either of the two projects is 12 percent. What is the range of initial investment (lo) for which Project Billion is more financially attractive than Project Million? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Initial investment less than $ 5,530.00
You are considering the following two mutually exclusive projects. The crossover rate between these two projects is ___ percent and Project ___ should be accepted if the required return is greater than the crossover rate. Year Project A Project B 0 −$ 31,000 −$ 31,000 1 12,000 20,140 2 12,000 10,000 3 20,000 12,160
please answer both questions correctly: 10. A project has the following cash flows: Year Cash Flow 0 $ 43,500 1 −22,500 2 −33,500 a. What is the IRR for this project? (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 NPV of this project, if the required return is 12 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV of the project if the required return is 0 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the NPV of the project if the required return is 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) 11. Anderson International Limited is…
You are evaluating five investment projects. You already calculated the rate of return for each alternative investment and incremental rate of return between the two alternatives as well. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. Investment Alternative Initial Investment ($) Rate of Return (%) Rate of Return on Incremental Investment (%) A CDE A B C D E b.Select E. c. Select B. 35,000 45,000 d. Do nothing. 50,000 65,000 80,000 12 15 13 20 18 B 28 20 36 27 12 40 22 If all investment alternatives are mutually exclusive and the MARR is 12%, which alternative should be chosen? a. Select D. 42 25 -5
A potential project provides the following: Initial Investment = 36,101 Annual cash Flows = 12,101 period= 5 years What is the discount rate If NPV = 0? Answer in the format: #0.00 Answer as a percentage but without the % sign Example 0 0651 is entered as 6.51 Do not round intermediary calculations. Use full precision of your calculator or Excel. Do not include commas or dollar signs. Round properly to two decimal places Example: .157835 would be .16 Example: 2.3491 would be entered 2.35 HINT: Be sure your answer is percentage
Project X has an initial investment at time O of $1,000 and it returns $250 one year from now and$1,000 two years from now. Project Y has an initial investment at time O of $2,000 and it returns$2,534.40 two years from now. The risk level and the net present values of the two projects areequal. Calculate the required return for project X. Answer: 12% please do not solve with excel

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