We are examining a new project. We expect to sell 8,500 units per year at $175 net cash flow apiece (including CCA) for the next 16 years. In other words, the annual operating cash flow is projected to be $175 x 8,500 - $1,487,500. The relevant discount rate is 19%, and the initial investment required is $4,947,000. Suppose you think it is likely that expected sales will be revised upward to 9,250 units if the first year is a success and revised downward to 4,050 units if the first year is not a success. a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ b. After the first year, the project can be dismantled and sold for $2,517,000. What is the value of the option to abandon? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) The value of the option to abandon $

We are examining a new project. We expect to sell 8,500 units per year at $175 net cash flow apiece (including CCA) for the next 16 years. In other words, the annual operating cash flow is projected to be $175 x 8,500 - $1,487,500. The relevant discount rate is 19%, and the initial investment required is $4,947,000. Suppose you think it is likely that expected sales will be revised upward to 9,250 units if the first year is a success and revised downward to 4,050 units if the first year is not a success. a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ b. After the first year, the project can be dismantled and sold for $2,517,000. What is the value of the option to abandon? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) The value of the option to abandon $

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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firm is considering the launch of a new product, the XJ5. The upfront development cost is $ 8 million, and you expect to earn a cash flow of $ 2.9 million per year for the next 5 years. Create a table for the NPV profile for this project for discount rates ranging from 0 % to 30 % (in intervals of 5 %).For which discount rates is the project attractive?
You are evaluating a project that will cost 5484 000, but is expected to produce cash flows of 6121,000 per year for 10 years, with the first cash flow in one year Your cost of capital is 11.1% and your company's preferred payback period is three years or less.
You are evaluating a project that will cost $508,000, but is expected to produce cash flows of $126,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11.3% and your company's preferred payback period is three years or less. a. What is the payback period of this project? b. Should you take the project if you want to increase the value of the company? a. What is the payback period of this project? The payback period is years. (Round to two decimal places.)
ZLX is considering an project that requires a $3,560,000 initial investment, and is expected to provide incremental after-tax cash flows (OCF's) of $725,000 per year for 8 years, starting 1 year from today. If the required return is 10.9% compounded annually, what is the NPV of the project? Enter answer in dollars, rounded to the nearest dollar.
You are considering opening a new plant. The plant will cost $98.2 million upfront. After that, it is expected to produce profits of $30.2 million at the end of every year. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 6.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. Calculate the NPV of this investment opportunity if your cost of capital is 6.6%. The NPV of this investment opportunity is $ million. (Round to one decimal place.)
A project with an initial cost of 30800 is expected to provide cash flow of 11,100 11,900, 15000 and 9500 over the next four year, respectively if the required return is 9.3 percent what is the projects profability index?
Growth Enterprises believes its latest project, which will cost $80,000 to install, will generate a perpetual growing stream of cash flows. Cash flow at the end of the first year will be $6,000, and cash flows in future years are expected to grow indefinitely at an annual rate of 5%.. a. If the discount rate for this project is 10%, what is the project NPV? Note: Do not round intermediate calculations. Answer is complete and correct. NPV $ 40,000 b. What is the project IRR? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. IRR Answer is complete but not entirely correct. 0.00%
A project is projected to cost $2,000,000 to undertake. It will generate positive cash inflows as follows: Year 1 - $400,000; Year 2 500,000; Year 3 - $650,000; ear 4 - 750,000; Year 5 - 800,000. What is the project's Profitability Index if the required return is 10% ?
You are considering opening a new plant. The plant will cost $103.4 million up front and will take one year to build. After that it is expected to produce profits of $29.6 million at the end of every year of production (starting two years from now). The cash flows are expected to last forever Calculate the NPV of this investment opportunity if your cost of capital is 8.3%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. D
A project is expected to generate the following cash flows: $1 million in one year, $3.7 million in two years, $4 million in three years and $4,3 million in four years. The cash flow is then expected to remain constant (54 3 million per year) in perpetuity. How much are you willing to invest in the project today if you want the project to have an internal Rate of Return (IRR) of 15% ?
Keuka Corporation is considering a project that costs $1 million and will produce benefits for 5 years. The first year cash inflow can be rather accurately estimated at $240,000, measured in today's dollars. If the actual first-through fifth-year cash flows are assumed to be the same size ($240,000), what would the NPV of the investment be if the appropriate discount rate is 15% ? Round to the nearest whole number. If the answer is negative, put your answer in parentheses. NPV = S
You are evaluating a project that will cost $500,000 but is expected to produce cash flows of $125,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11% and your company's preferred payback period is three years or less. What is the payback period of this project? The payback period is ____ years. (Round to two decimal places)

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