The firm is considering replacing their computer system. The incremental cash flow from assets for this project are an $80,000 initial investment and and the expected cash flows are $36,000 per year for the next 3 years. Based on the IRR, should you accept or reject the project? Note: You have already calculated the WACC in the previous question. This is here as a reference in case you need it: Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent.

The firm is considering replacing their computer system. The incremental cash flow from assets for this project are an $80,000 initial investment and and the expected cash flows are $36,000 per year for the next 3 years. Based on the IRR, should you accept or reject the project? Note: You have already calculated the WACC in the previous question. This is here as a reference in case you need it: Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated market return is 13%, the risk free rate is 8%, and Bluefield's beta is 1.4. Bluefield's tax rate is 30 percent.

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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FYT Inc estimates that a new project with conventional cash flows will generate an NPV of $500,000. What is the project's profitability index given that the required investment is $3.12 million? Enter index rounded to the nearest hundredth, as in "1.01"
Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,600, has a five-year life, and has no residual value after five years. The company's cost of capital is 10.99%. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV across the three scenarios. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year Pessimistic 1 $6,720 2 7,310 8,730 4 7,850 5 5,840 $9,320 13,270 ITTI Expected cash inflows Most likely Optimistic $11,750 10,320 11,680 10,720 15,830 12,780 7,730 8,820 For the pessimistic scenario, the NPV is $ (Round to the nearest cent.)
Consider again the electric car dealership in Section 22.3. Suppose the current value of a dealership is $5.2 million and the first-year free cash flow is expected to be $520,000 rather than $600,000. What is the beta of a corporation whose only asset is a one-year option to open a dealership? What is the beta if the first year’s cash flows are expected to be $710,000, so a working dealership is worth $7.1 million?
Please answer the question as in attached file.
Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,300, has a five-year life, and has no residual value after five years. The company's cost of capital is 10.41%. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV across the three scenarios. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year 1 2 3 4 5 Pessimistic $6,720 7,180 8,680 7,770 5.800 Expected cash inflows Most likely $9,240 10,150 11,790 10,740 7.840 Optimistic $11,830 13,260 15,800 12,790 8.780
OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $501 million and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70.7 million and its cost of capital is 12.0%. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas go ahead with the purchase? d. How far off could OpenSeas's cost of capital estimate be before your purchase decision would change? SITTE a. Prepare an NPV profile of the purchase. To plot the NPV profile, we compute the NPV of the project for various discount rates and plot the curve. The NPV for a discount rate of 2.0% is $ million. (Round to one decimal place.)
You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow 100 1-10 14 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.41. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 13%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places.) Net present value million
Brett Collins is reviewing his company's investment in a cement plant. The company paid $16,000,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's desired rate of return for present value computations is 10 percent. Expected and actual cash flows follow: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Expected Actual Year 1 $3,310,000 2,600,000 Required Year 2 $5,090,000 2,980,000 Year 3 $4,560,000 4,860,000 Year 4 $5,090,000 3,810,000 Year 5 $4,290,000 3,540,000 a.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment. Note: Negative amounts should be indicated by a minus sign. Round your intermediate calculations and final answers to the nearest whole dollar.
Towson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. Using the IRR formula in the textbook and the Appendix B PV FV Tables.pdf download, what is the present value factor for this investment? Given the answer above, what is the investment’s internal rate of return? and Use the appropriate EXCEL spreadsheet in the Chapter11 TVOM Examples.xlsx downloadto prove your answer above: Using the appropriate EXCEL spreadsheet, the answer = PLEASE NOTE: All PV Factors will be rounded to three decimal places (i.e. 1.234). Round your IRR answers, in percentage format, to one decimal place (i.e. 12.3%).
Brett Collins is reviewing his company's investment in a cement plant. The company paid $15.500,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company's desired rate of return for present value computations is 10 percent. Expected and actual cash flows follow: (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Expected Actual Year 1 $3,380,000 2,700,000 Year 2 $4,950,000 3,060,000 Net present value (expected) Net present value (actual) Year 3 $4,580,000 4,900,000 Year 4 $5,040,000 Year 5 $4,250,000 3,860,000 3,530,000 Required a.&b. Compute the net present value of the expected and actual cash flows as of the beginning of the investment. Note: Negative amounts should be Indicated by a minus sign. Round your Intermediate calculations and final answers to the nearest whole dollar.
You are a consultant to a large manufacturing corporation considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now After-Tax CF 0 −$ 22 1 to 10 $ 10 The project's beta is 1.6. Assuming rf = 5% and E(rM) = 15% Required: a. What is the net present value of the project? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the highest possible beta estimate for the project before its NPV becomes negative? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
Regarding the proposed investments, XYZ INC. gathers the following data: a cash cost of 13,000, net annual cash flows of 45,000, and a present value factor of 5.40 rounded for cash inflows over a ten-year period. Find out all the relevant details that will be important when choosing an investment. Please let me know whether you think our firm should receive an investment based on the following information:

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