Two mutually exclusive altenatives are being considered for the environmental protection equipment at apetroleum refinery. One of these alternatives must be selected. The firm's MARR is 20% per year. The estimatedcash flows for each alternative are as follows:Market value(at end of usefullife)$4,000$6,000AnnualСаpitalinvestmentUsefulexpenses4,000life(years)5Alternative A S20,000Alternative BAssume the study period is shortened to five years. The market value of alternative B after five years is estimatedto be $12,000. Which alternative would you select using NPW-C? (Draw the cash flow diagram and solve.)$30,0002,00010

It is given that : Alternative A:Investment - $ 20,000 Annual expense - $4000 Life – 5 yrs Salvage…

Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these altenatives must be selected. The firm's MARR is 20% per year. The estimated cash flows for each alternative are as follows: Market value(at end of useful life) $4,000 $6,000 Capital investment Annual Useful life(years) Altenative A S20,000 Altenative B S30,000 Assume the study period is shortened to five years. The market value of alternative B after five years is estimated to be $12,000. Which alternative would you select using NPW-C? (Draw the cash flow diagram and solve.) expenses 4,000 2,000 5 10

Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these altenatives must be selected. The firm's MARR is 20% per year. The estimated cash flows for each alternative are as follows: Market value(at end of useful life) $4,000 $6,000 Capital investment Annual Useful life(years) Altenative A S20,000 Altenative B S30,000 Assume the study period is shortened to five years. The market value of alternative B after five years is estimated to be $12,000. Which alternative would you select using NPW-C? (Draw the cash flow diagram and solve.) expenses 4,000 2,000 5 10

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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Assume you have been asked to evaluate an investment in capital equipment for the production of biofuels. The machine will cost $215,000 and it will last 10 years (useful and depreciation lifespans). Using straight-line depreciation, the salvage value for the investment is $0. You expect the equipment to have a terminal value of $20,000 at the end of the investment period. The machine has an annual maintenance cost of $6,000. Your marginal tax rate is 30%; remember that you get to keep (1-m) for everything other than the depreciation shield on an after-tax basis (it’s simply m * depreciation shield). Your after tax-cost of capital (discount rate) is 9.5%. Labor costs in the production of biofuels are $17,500/year. The machine will produce 25,500 units of biofuel annually that will be sold at $2.50/unit. Fill in the missing pieces (a through h) in the table below to complete the NPC analysis Item Pre-tax After-tax Time Growth Rate Discount Rate P.V. Factor Present…
1. An analyst offers three investment alternatives with the initial investment of A= $200,000; B= $300,000 and C= $100,000. The net annual income for these alternatives over the next 10 years includes $40,000; $55,000 and $19,000 respectively. Use IRR to choose the best alternative. MARR= 10% and no salvage values after 10 years.
Cardinal Company is considering a project that would require a $2,810,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $500,000. The company's discount rate is 16%. The project would provide net operating income each year as follows: $2,847,000 1,121,000 1,726,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 782,000 Depreciation Total fixed expenses 462,000 1,244,000 Net operating income $ 482,000 Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: What is the present value of the project's annual net cash inflows? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.) Present value
You have been asked to evaluate two alternatives, X and Y, that may increase plant capacity for manufacturing high-pressure hydraulic hoses. The parameters associated with each alternative have been estimated. Which one should be selected on the basis of a present worth comparison at an interest rate of 13% per year? Why is yours the correct choice? Alternative First Cost X $-45,000 Maintenance cost, per $-9000 Year Salvage Value $1,000 Life 5 years Y $-55,000 $-4000 $6,500 5 years The present worth of alternative X is $ 13888 and that of alternative Y is $ 44459.4 Alternative X is selected by the company.
Two mutually exculsive alternative are being considered for the environmental protection equipment at a petroleum refinary. one of these alternatives must be selected. The estimated cash flow for each alternatives are as follows. Use MARR of 10% Note: Do not round in between solutions and round up to 2 decimal places for final asnwer Asnwer the following: B. Assume the study period is shortened to Five years. The market value of Alternative B after Five years is estimated to be $15,000. Which alternative would you recommend? Use Annual Worth method
The construction of a bypass road needs a capital investment of $200,000 and $10,000 would be required each year for maintenance. The annual benefits to the project have been estimated to be $60,000. The study period(estimated life) of the project is 10 years. The MARR is set at 12%. a. What is the discounted payback period(in years)? b. Determine whether this is a good investment using Modified Benefit-Cost Ratio method with Present Worth(PW). c. Using Conventional Benefit-Cost Ratio method with PW but the MARR is set at 12%, is this project acceptable?
What is the average rate of return for this investment?
Al’ain Corporation is studying a project that would have a ten-year life and would require a $420,000 investment in equipment that has no salvage value. The project would provide net operating income each year as follows for the life of the project: Sales $ 400,000 Less cash variable expenses 100,000 Contribution margin 300,000 Less fixed expenses: Fixed cash expenses $ 160,000 Depreciation expenses 40,000 200,000 Net operating income $ 100,000 The company's required rate of return is 12%. The payback period for this project is closest to: 3 years 2 years 3.5 years 5 years
Wildhorse's Custom Construction Company is considering three new projects, each requiring an equipment investment of $26,840. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $8,540 $12,200 $15,860 2 10,980 12,200 14,640 3 14,640 12,200 13,420 Total $34,160 $36,600 $43,920 The equipment's salvage value is zero, and Wildhorse uses straight-line depreciation. Wildhorse will not accept any project with a cash payback period over 2 years. Wildhorse's required rate of return is 12%. Click here to view PV table. (a) Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA BB years years CC years
Garcìa Co. can invest in one of two alternative projects. Project Y requires a $360,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $360,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. Required 1. Compute each project's annual net cash flows. 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each project's net present value using 8% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose?
A project will produce an operating cash flow of $18,000 a year for 8 years. The initial fixed asset investment in the project will be $75,000. The net aftertax salvage value is estimated at $11,250 and will be received during the last year of the project's life. What is the IRR? A. 18.57% B. 16.71% C. 17.08% D. 18.94% E. 17.83%
PLEASE SHOW COMPLETE SOLUTION, NO EXCEL.

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