The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next four years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 $100,000 $20,000 $330,000 $450,000 The Cro of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? O $1,650,000 O 2,000,000 O $792,676 O $450,000

The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next four years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 $100,000 $20,000 $330,000 $450,000 The Cro of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? O $1,650,000 O 2,000,000 O $792,676 O $450,000

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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A project has the following expected net cash flows associated with it: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 -R 800 000 R150 000 R200 000 R400 000 R100 000 R100 000 The cash flows are expressed in real terms. Adjust the cash flows to nominal terms assuming constant inflation of 5% and calculate the NPV of the project. The company in question has a WACC of 10%.
A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: Year 1 $400,000 Year 2 $20,000 Annual Cash Flows Year 3 Year 4 $180,000 $300,000 O $600,000 O $1,975,000 O $1,395,097 O $1,775,000 Year 5 $350,000 Year 6 $725,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 9%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? Identify whether the situations described in the following table are examples of uneven cash flows or annuity payments: Description Debbie has been donating 10% of her salary at the end of every year to charity for the last three years. Her salary increased by 15% every year in the last three…
The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: Year Cash Outflow Cash Inflow $1,905,000 $105,000 555,000 200,000 360,000 475,000 515,000 605,000 595,000 305,000 250,000 250,000 A. What is the payback period of this uneven cash flow? Round your answer to 2 decimal places. 1 2 3 4 5 6 7 8 9 10 years B. Does your answer change if year 10's cash inflow changes to $500,000? The answer for part A if the cash inflow in year 10 changes to $500,000.
Your company has a well that needs some work to resume production. The work will cost $550,000. After the work is complete, the well is expected to produce the annual oil production shown in the following table. Your WI is 80% and your NRI is 68%. Operating costs are estimated to be $35,000 per year. Assume a constant oil price of $85/Bbl. Calculate total net cash flow (BFIT) for this investment. Year 1 2 3 8/8ths Production, Bbl 5000 4200 3600 Answer: 2 Would you rather own (A) WI = 80%, NRI = 64% or (B) WI = 40%, NRI = 34% ? WHY? 3 You are going to invest $30,000. Your goal is to double your investment in 10 years. At approximately what interest rate do you need to invest? 4 Your first job gives you an incentive to stay for a minimum of 3 years. At the end of 3 years, the company will give you a bonus of $15,000. Assuming an interest rate of 6% per year, what is the present value of the Bonus? Your bank has quoted you a nominal interest rate of 17%. Your loan will be compounded…
Dowling Sportwear is considering building a new factory to produce baseball bats. The project will require an initial outlay of $ 8,000,000 and will generate annual net cash inflows of $ 2,000,000 per year for 6 years. Calculate the project's Net Present Value (NPV) assuming a 9% discount rate: a. $871,837 b. $971,837 c. $6,000,000 d. $4,000,000
Beyer Company is considering the purchase of an asset for $240,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Net cash flows Year 0 1 2 3 4 5 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.) $ Cash Inflow (Outflow) (240,000) Year 1 $60,000 Payback period = Year 2 $36,000 Cumulative Net Cash Inflow (Outflow) Year 3 $60,000
You invest in a company which expects to pay you the following amounts in return each year. Year 1: $1,100, Year 2: $2,100, Year 3: $1,600, Year 4: $2,100, and Year 5 $1,500. If an annual interest rate is 5 percent, what is the present value of this uneven cash flow stream? $7,883 $7,807 $7,563 $7,237
Channel Tunnel Inc. plans to build an additional 23-mile-long tunnel under the English Channel for added train service. The cost (NINV) of the tunnel is expected to be $4.3 billion. Net cash inflows are expected to equal $764 million per year. How many years must the firm generate this cash inflow stream for investors to earn their required 17 percent rate of return?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $34,580 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,000 $22,500 $4,500 $59,000 Beta Project 8,000 23,500 25,664 57,164 A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to calculate internal rate of return. % Alpha Project Beta Project B. Make a recommendation on which one to accept.
Having difficulty with IRR calculations...attached the homework question. Thanks!
Company XYZ is considering an investment project that is expected to generate the following cash flows: Year 1: $500,000 Year 2: $700,000 Year 3: $800,000 Year 4: $900,000 Year 5: $1,200,000 The cost of capital for the company is 10%. Calculate the Firm's Present Value (FPV) of the cash flows. To calculate the Firm's Present Value (FPV) of the cash flows, you need to discount each cash flow to its present value using the cost of capital, and then sum up the present values of all cash flows.
Johnson and Johnson forecasts year-end annual USD3 million free cash flows into perpetuity from an investment of USD14 million in Turkey. If the required return on this investment is 15% and the company's WACC is 19%, what must the probability of expropriation in year 6 have to be at a minimum before the investment is not financially viable? If expropriation occurs it will occur just before the year 6 cash inflow or not at all Johnson and Johnson has not applied for political risk insurance. O a 60.341% O b. 69.392% Oc. 30.000% Od. 27.045% Oe. 32.184%

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