Two mutually exclusive investment opportunities require an initial investment of $8 million. Investment A then generates $1.50 million per year in perpetuity, while investment B pays $1.30 million in the first year, with cash flows increasing by 3% per year after that. At what cost of capital would an investor regard both opportunities as being equivalent? ... ОА. 23% ОВ. 11% Ос. 6% O D. 25%

Two mutually exclusive investment opportunities require an initial investment of $8 million. Investment A then generates $1.50 million per year in perpetuity, while investment B pays $1.30 million in the first year, with cash flows increasing by 3% per year after that. At what cost of capital would an investor regard both opportunities as being equivalent? ... ОА. 23% ОВ. 11% Ос. 6% O D. 25%

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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The table below shows a comparison between three mutually exclusive alternatives. If the capital investment of A < B < C, and the MARR is 15%, arrange these alternatives based on decreasing Annual worth (From the Highest annual worth to the Lowest annual worth)? Comparison A C B-A C-A | C-B RR% 195 16.7 17.4 16.2 15.4 17.6 О а. ВСА O b. CAB О с. СВА O d. BAC company's required rate of return is 10% and, in using the present worth method, a project's net present value is zero, this indicates that the O a. project earns a rate of return of 10%. O b. project's rate of return exceeds 10%. C. project earns a rate of return of 0%. d. project's rate of return is less than the minimum rate required.
A project requires an investment of $1000 and generates a cash flow of $1000 in 1 year and another $1000 in 5 years. What is the IRR? A. 16.87% B. 25.13% C. 32.47% D. 38.16%
Justin Lieberman must earn a minimum rate of return of 16.79% as compensation for the risk of the following investment a. Use present value techniques to estimate the IRR on this investment. b. On the basis of your finding in part a, should Justin make the proposed investment? a. The yield on this investment is %. (Round to two decimal places.) Data table Initial Investment End of Year 1 2345 $15,119 Income $3,957 $4,879 $5,900 $3,601 $2,000 - X C
What is the rate of return (the interest rate) on an investment today of $30,626.24 if the company expects to receive $45,000 in 5 years? а. 9% O b. 8% С. 6% d. 7%
Raysut cement has taken up a new project with an initial investment of 125000 OMR.The expected future cashflow from the project over the next three years will be 57000 OMR, 55000 OMR and 65000 OMR.What is the profitability index if the discount rate is 15 percent? Select one: O a. None of these O b. 1.07 О с. 1.23 O d. 1.12 О е. 1.04
If you invest $131,300 in a project which yields an annual return of $25,400, how many years will it take to recover your investment if the annual interest rate is 5.5%? a. 8 O b. 5 О с. 7 d. 6 е. 9
A real estate investment has the following expected cash flows: Year Cash Flows 1 $14,000 2 19,000 3 19,000 4 25,000 The discount rate is 3 percent. What is the investment’s present value? Round your answer to 2 decimal places
Assume an investment is priced today at $5,000 and has the following income stream: Year Cash Flow 1 123 2 3 4 $ 1,000 - 2,000 3,000 3,000 Would an investor with a required rate of return of 15 percent be wise to invest at a price of $5,000? Multiple Choice No, because the investment has a net present value of - $1,139.15. No, because the investment has a net present value of - $1,954.91. Yes, because the investment has a net present value of $1,069.66. Yes, because the investment has a net present value of $1,954.91. An investor would be indifferent between purchasing and not purchasing the above investment at the stated price.
None
A company is considering two mutually exclusive investments with a discount rate of 10%.The cash flows of the projects over time follows: Time Project A Project B 0 - RM300,000 - RM405,000 1 - RM387,000 RM134,000 2 - RM193,000 RM134,000 3 - RM100,000 RM134,000 4 RM600,000 RM134,000 5 RM600,000 RM134,000 6 RM850,000 RM134,000 7 - RM180,000 RM0 Question: The company does not want to issue new share capital or debentures to financethis project. Recommend three (3) appropriate financing methods for this project.Provide support for your recommendations.
Manshukh
A company is considering two mutually exclusive investments with a discount rate of 10%.The cash flows of the projects over time follows: Time Project A Project B 0 - RM300,000 - RM405,000 1 - RM387,000 RM134,000 2 - RM193,000 RM134,000 3 - RM100,000 RM134,000 4 RM600,000 RM134,000 5 RM600,000 RM134,000 6 RM850,000 RM134,000 7 - RM180,000 RM0 A. What is the Net Present Value (NPV) for each project? B. Since the projects are mutually exclusive, which project would you recommend?Justify your recommendation. C. Suppose that the projects are independent projects, which project (s) would yourecommend? Justify your recommendation.

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