Use the NPV method to determine whether Stenback Products should invest in the following projects: . • Project A: Costs $260,000 and offers eight annual net cash inflows of $54,000. Stenback Products requires an annual return of 14% on investments of this nature. Project B: Costs $395,000 and offers 10 annual net cash inflows of $77,000. Stenback Products demands an annual return of 12% on investments of this nature. (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative ne Caclulate the NPV (net present value) of each project. Begin by calculating the NPV of Project A. Project A: Years 1-8 Present value of annuity 0 Investment Net present value of Project A Requirements Net Cash Annuity PV Factor Inflow (i-14%, n=8) 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. 2. What is the maximum acceptable price to pay for each project? 3. What is the profitability index of each project? Round to two decimal places. Present Value - X Reference Periods Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Period 15 Present Value of Ordinary Annuity of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 155 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.87 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.62 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.28 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.85 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.35 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.111 3.889 3.78 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.16 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.48 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 4.77 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 5.01 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.23 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.42 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 5.842 5.58 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.72 13 866 12 849 11.938 11.118 10.380 9712 9.108 8.559 8061 7.606 6311 6142 584
Use the NPV method to determine whether Stenback Products should invest in the following projects: . • Project A: Costs $260,000 and offers eight annual net cash inflows of $54,000. Stenback Products requires an annual return of 14% on investments of this nature. Project B: Costs $395,000 and offers 10 annual net cash inflows of $77,000. Stenback Products demands an annual return of 12% on investments of this nature. (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative ne Caclulate the NPV (net present value) of each project. Begin by calculating the NPV of Project A. Project A: Years 1-8 Present value of annuity 0 Investment Net present value of Project A Requirements Net Cash Annuity PV Factor Inflow (i-14%, n=8) 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. 2. What is the maximum acceptable price to pay for each project? 3. What is the profitability index of each project? Round to two decimal places. Present Value - X Reference Periods Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Period 15 Present Value of Ordinary Annuity of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 155 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.87 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.62 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.28 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.85 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.35 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.111 3.889 3.78 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.16 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.48 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 4.77 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 5.01 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.23 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.42 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 5.842 5.58 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.72 13 866 12 849 11.938 11.118 10.380 9712 9.108 8.559 8061 7.606 6311 6142 584
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
Related questions
Concept explainers
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
Topic Video
Question
Transcribed Image Text:Use the NPV method to determine whether Stenback Products should invest in the following projects:
Project A: Costs $260,000 and offers eight annual net cash inflows of $54,000. Stenback Products requires an annual return of 14% on investments of this nature.
Project B: Costs $395,000 and offers 10 annual net cash inflows of $77,000. Stenback Products demands an annual return of 12% on investments of this nature.
(Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.)
Read the requirements.
Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.)
Caclulate the NPV (net present value) of each project. Begin by calculating the NPV of Project A.
Project A:
Years
1-8 Present value of annuity
0
Investment
Net present value of Project A
Requirements
example
1.
What is the NPV of each project? Assume neither project has a residual
value. Round to two decimal places.
2. What is the maximum acceptable price to pay for each project?
3. What is the profitability index of each project? Round to two decimal places.
Print
Net Cash
Inflow
Get more help.
Annuity PV Factor
(i=14%, n=8)
Done
C
Present
Value
Reference
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Period 11
Period 12
Period 13
Period 14
Period 15
Period 16
Period 17
Period 18
Period 19
Period 20
Period 21
Period 22
Period 23
Period 24
Period 25
Period 26
Period 27
Period 28
Period 29
Period 30
Period 40
Period 50
Present Value of Ordinary Annuity of $1
12% 14% 15% 16% 18% 20%
5% 6% 7% 8% 9% 10%
0.952 0.943 0.935
1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.626 1.605 1.566 1.528
0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833
1% 2% 3% 4%
0.990 0.980 0.971 0.962
1.970 1.942 1.913
1.886
2.941 2.884
2.829
2.775
3.902 3.808 3.717 3.630
4.580 4.452 4.329 4.212 4.100
2.723 2.673 2.624
3.546 3.465 3.387
2.577 2.531 2.487 2.402 2.322 2.283 2.246 2.174 2.106
3.312 3.240 3.170 3.037 2.914 2.855 2.798 2.690 2.589
3.993 3.890 3.791
4.853 4.713
3.605 3.433 3.352 3.274 3.127 2.991
5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.111 3.889 3.784 3.685 3.498 3.326
6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.160 4.039 3.812 3.605
7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.487 4.344 4.078 3.837
8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 4.772 4.607 4.303 4.031
9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 5.019 4.833 4.494 4.192
10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.234
11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.421
12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 5.842 5.583
13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.724
13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 6.811 6.142 5.847
5.029 4.656 4.327
5.197 4.793 4.439
5.342 4.910 4.533
5.468 5.008 4,611
5.575 5.092 4.675
14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 6.974 6.265 5.954 5.669 5.162 4.730
15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.120 6.373 6.047 5.749 5.222 4.775
16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.250 6.467 6.128 5.818 5.273 4.812
17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 6.198 5.877 5.316 4.844
18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.469 6.623 6.259 5.929 5.353 4.870
18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649 7.562 6.687 6.312 5.973 5.384 4.891
19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772 7.645 6.743 6.359 6.011 5.410 4.909
20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883 7.718 6.792 6.399 6.044 5.432 4.925
21.243 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985 7.784 6.835 6.434 6.073 5.451 4.937
22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.464 6.097 5.467 4.948
22.795 20.121 17.877 15.983 14.375 13.003 11.826 10.810 9.929 9.161 7.896 6.906 6.491 6.118 5.480 4.956
23.560 20.707 18.327 16.330 14.643 13.211 11.987 10.935 10.027 9.237 7.943 6.935 6.514 6.136 5.492 4.964
24.316 21.281 18.764 16.663 14.898 13.406 12.137 11.051 10.116 9.307 7.984 6.961 6.534 6.152 5.502 4.970
25.066 21.844 19.188 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.022 6.983 6.551 6.166 5.510 4.975
25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.566 6.177 5.517 4.979
32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.244 7.105 6.642 6.233 5.548 4.997
4.999
39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 8.304 7.133 6.661 6.246 5.554
X
Transcribed Image Text:Use the NPV method to determine whether Stenback Products should invest in the following projects:
Project A: Costs $260,000 and offers eight annual net cash inflows of $54,000. Stenback Products requires an annual return of 14% on investments of this nature.
Project B: Costs $395,000 and offers 10 annual net cash inflows of $77,000. Stenback Products demands an annual return of 12% on investments of this nature.
(Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.)
Read the requirements.
Requirement 1. What is the NPV of each project? Assume neither project has a residual value. Round to two decimal places. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.)
Caclulate the NPV (net present value) of each project. Begin by calculating the NPV of Project A
Net Cash
Inflow
Project A:
Years
1-8
0
Present value of annuity
Investment
Net present value of Project A
Requirements
s example
1. What is the NPV of each project? Assume neither project has a residual
value. Round to two decimal places.
2. What is the maximum acceptable price to pay for each project?
3. What is the profitability index of each project? Round to two decimal places.
Print
Annuity PV Factor
(i=14%, n=8)
Get more help.
Done
Present
Value
- X
Reference
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Period 11
Period 12
Period 13
Period 14
Period 15
Period 16
Period 17
Period 18
Period 19
Period 20
Period 21
Period 22
Period 23
Period 24
Period 25
Period 26
Period 27
Period 28
Period 29
Period 30
Period 40
Period 50
Present Value of $1
1% 2% 3% 4% 5% 6% 7%
0.990 0.980 0.971 0.962 0.952 0.943 0.935
0.980 0.961 0.943 0.925 0.907 0.890 0.873
0.971 0.942 0.915 0.889 0.864 0.840 0.816
0.961 0.924 0.888 0.855 0.823 0.792 0.763
0.951 0.906 0.863 0.822 0.784 0.747 0.713
8% 9% 10% 12% 14% 15% 16% 18% 20%
0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833
0.857 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694
0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579
0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482
0.681 0.650 0.621 0.567 0.519 0.497 0.476 0.437 0.402
0.123 0.107
0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.507 0.456 0.432 0.410 0.370 0.335
0.933 0.871 0.813 0.760 0.711 0.665
0.623
0.583 0.547 0.513 0.452 0.400 0.376 0.354 0.314 0.279
0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.404 0.351 0.327 0.305 0.266 0.233
0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.361 0.308 0.284 0.263 0.225 0.194
0.463
0.905 0.820 0.744 0.676 0.614 0.558 0.508
0.422 0.386 0.322 0.270 0.247 0.227 0.191 0.162
0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135
0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112
0.879 0.773 0.681 0.601 0.530 0.469
0.415 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093
0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078
0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.065
0.252 0.218 0.163
0.093 0.071 0.054
0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045
0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038
0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031
0.215 0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026
0.199 0.164 0.135 0.093 0.064 0.053 0.044 0.031 0.022
0.184 0.150 0.123 0.083 0.056 0.046 0.038 0.026 0.018
0.170 0.138 0.112 0.074 0.049 0.040 0.033 0.022 0.015
0.158 0.126 0.102 0.066 0.043 0.035 0.028 0.019 0.013
0.184 0.146 0.116 0.092 0.059 0.038 0.030 0.024 0.016 0.010
0.772 0.598 0464 0.361 0281 0.220 0.172 0.135
0.764 0.586 0 450 0.347 0268 0207 0.161 0 125
0.757 0.574 0.437 0.333 0.255 0.196 0.150 0.116
0.749 0.563 0.424 0.321 0.243 0.185 0.141 0.107
0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099
0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046
0.087
0.608 0.372 0.228 0.141
0.054
0.034
0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292
0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270
0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250
0.828 0.686 0.570 0.475 0.396 0.331
0.277 0.232
0.820 0.673 0.554 0.456 0.377 0.312 0.258
0.811 0.660 0.538 0.439 0.359 0.294 0.242
0.803 0.647 0.522 0.422 0.342 0.278 0.226
0.795 0.634 0.507 0.406 0.326 0.262 0.211
0.788 0.622 0.492 0.390 0.310 0.247 0.197
0.780 0.610 0.478 0.375 0.295 0.233
0.021
0.106 0.084 0.053 0.033 0026 0.021 0.014 0.009
0.098 0.076 0.047 0.029 0023 0.018 0.011 0.007
0.090 0.069 0.042 0.026 0.020 0.016 0.010 0.006
0.082 0.063 0.037 0.022 0.017 0.014 0.008 0.005
0.075 0.057 0.033 0.020 0.015 0.012 0.007 0.004
0.032 0.022 0.011 0.005 0.004 0.003 0.001 0.001
0.013 0.009 0.003 0.001 0.001 0.001
X
→
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