Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $1,904,630. It will be used for 12 years,then sold for $713,200. The facility will generate annual cash inflows of $370,700 and will need new annual cash outflows of$155,600. The company has a required rate of return of 7%.Click here to view the factor table.Calculate the internal rate of return on this project. (Round answer to 0 decimal place, e.g. 13%.)Internal rate of return isWhether the project should be accepted.The projectbe accepted.%

IRR is the break even rate at which present value of cash flow is equal to initial investment and net present value is zero.Initial investment=year 0=-1904630Annual cash flow (1-11)years=cash inflow-cash outflow=370700-155600=$ 215100Annual cash flow (1-11)years=$215100Cash flow year 12=215100+713200=$928300Cash flow year 12=$928300SolvingIRR of project=8.0%IRR is more than required rate.Project should be accepted. Year 0-1904630Year1215100Year 2215100Year 3215100Year 4215100Year 5215100Year 6215100Year 7215100Year 8215100Year 9215100Year 10215100Year 11215100Year 12928300IRR8.00%IRR of project=8.0%IRR is more than required rate.Project should be accepted.

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Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $1,904,630. It will be then sold for $713,200. The facility will generate annual cash inflows of $370,700 and will need new annual cash ou $155,600. The company has a required rate of return of 7%. Click here to view the factor table. Calculate the internal rate of return on this project. (Round answer to O decimal place, e.g. 13%.) Internal rate of return is Whether the project should be accepted. The project be accepted. %

Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $1,904,630. It will be then sold for $713,200. The facility will generate annual cash inflows of $370,700 and will need new annual cash ou $155,600. The company has a required rate of return of 7%. Click here to view the factor table. Calculate the internal rate of return on this project. (Round answer to O decimal place, e.g. 13%.) Internal rate of return is Whether the project should be accepted. The project be accepted. %

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 company is considering a new investment project with the following cash flow estimates: Year 0: Initial Investment = -$1,000,000 Year 1: Cash Inflow = $400,000 Year 2: Cash Inflow = $600,000 Year 3: Cash Inflow = $800,000 Year 4: Cash Inflow = $1,000,000 The company's required rate of return for this project is 15%. What is the NPV(Net Present Value) of the project?
IronZee Industries is adding a new product line that will require an investment of $1,268,000. It is estimated this investment will have a 10-year life and will generate net cash inflows of $296,000 the first year, $266,000 during the second year, and $235,000 each year thereafter for 8 years. The project will have $0.00 residual value. Compute the ARR for the investment. (Round your answers to two decimal places when needed and use rounded answers for all future calculations). IronZee Industries Total net cash inflows during operation life of expansion Less: Total depreciation during operating life of expansion Total operating income during operating life Divide by: expansions operating life in years Average annual operating income from expansion (Amount Invested + Residual Value) / 2 / 2 = = / Average amount Invested Average annual operating income / Average amount invested = = ARR (%)
Crane Corporation has decided to invest in renewable energy sources to meet part of its energy needs for production. It is considering solar power versus wind power. After considering cost savings as well as incremental revenues from selling excess electricity into the power grid, it has determined the following. Solar Wind Present value of annual cash flows $56,090 $130,820 Initial investment $39,500 $105,500 Determine the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25.) Solar Wind Net present value $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places Profitability index enter the number rounded to 2 decimal places…
Find the NPV of a project that costs $694,000 today and generates expected cash flows in each of the next three years of $155,000; $221,000; and $371,000. Use 10% as the cost of capital. Round your answer to the nearest dollar. Be sure you enter a negative sign (-) if your answer is a negative number.
Olinick Corporation is considering a project that would require an investment of $354,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (ignore income taxes.): Sales Variable expenses Contribution margin Fixed expenses: Salaries Rents Depreciation Total fixed expenses Net operating income Multiple Choice The scrap value of the project's assets at the end of the project would be $30,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (Round your answer to 1 decimal place.) 4.8 years $ 210,000 22,000 188,000 7.5 years 40,000 53,000 48,000 141,000 $ 47,000
Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $470,000 and has a present value of all its cash flows of $2,350,000. Project 2 requires an initial investment of $5,000,000 and has a present value of all its cash flows of $6,000,000. (a) Compute the profitability index for each project. (b) Based on the profitability index, which project should the company select? Complete this question by entering your answers in the tabs below. Required A Required B Compute the profitability index for each project. Profitability Index Numerator: Denominator: Profitability Index = Profitability index Project 1 Project 2
Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500 and has cash flows of $678, $652, $347, $111, $54, $16 in each of the next 6 years. Project Y also costs $1500, and generates cash flows of $738, $693, $405 for the next 3 years, respectively. WACC=11%.Calculate the projects’ NPVs, IRRs, payback periods.
Connor Corporation is considering two projects (see below). For your analysis, assume these projects are mutually exclusive with a required rate of return of 12%. project 1 project 2 initial investment $(510,000) $(685,000) cash flow year 1 485,000 610,000 Compute the following for each project: NPV (net present value) PI (profitability index) IRR (internal rate of return) Based on your analysis, answer the following questions : Which is the best choice? Why? Which project should be selected and why? If the projects had the same IRR amounts but different NPV totals, then how would you know which project to select? Explain.
Harper Electronics is considering investing in manufacturing equipment expected to cost $250,000. The equipment has an estimated useful life of four years and a salvage value of $25,000. It is expected to produce incremental cash revenues of $125,000 per year. Harper has an effective income tax rate of 30 percent and a desired rate of return of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Determine the net present value and the present value index of the investment, assuming that Harper uses straight-line depreciation for financial and income tax reporting. b. Determine the net present value and the present value index of the investment, assuming that Harper uses double-declining- balance depreciation for financial and income tax reporting. d. Determine the payback period and unadjusted rate of return (use average investment), assuming that Harper uses straight-line depreciation. e. Determine the payback period and unadjusted…
Stan company has a minimum required rate of return of 8%. It is considering investing in a project that costs $91,116 and is expected to generate cash inflows of $36,000 each year for three years. The approximate internal rate of return on this project is (round your answer to the nearest whole number) (Answer format for example: 3%)
Pendleton Products has a project requiring an initial cash investment of $3,400. The project is expected to return $1,100 each period for the next 5 periods, and it has a discount rate of 6%.1. Determine how long it will take, if at all, for the project to have a positive payback.Present value formula:
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