What is the percentage expected annual rate of return on a $1 million investment for a 25%interest in a company? In 2 years, the company will be acquired for $7 million. The correctanswer is 32.3%, please explain the steps fully.

The expected annual rate of return on a $1 million investment for a 25% interest in a company can be…

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Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Suppose you own a business and you expect to generate a profit of $50,000 next year. Each year after that you expect your profit to grow by 4%. If you earn profits for 10 years total and the discount rate is 8%, what is your company’s valuation today (present value)? (Show layout in Excel Please)
What is the rate of return on an investment that costs $5,000, earned a $600 dividend during the year, and is sold after 1 year for $4,400?
Consider a project with an initial investment (today, t = 0) of $200,975. This project will generate cash flows of $49,500 per year for the next 8 years, at which time (end of Year 8) the company will pay $50,000 to another for clean-up and disposal. What is the Profitability Index (PI) of the project if shareholders demand a 16.295% return? Answer with a number rounded to three decimal places, e.g., 4.0877% should be entered as 4.088.
The introduction of a new product would require an initial investment of $210,000. The forecast profits in successive years of the anticipated six-year product life are $25,000, $40,000, $80,000, $45,000, $35,000 and $15,000.a) Determine the IRR of the investment. (Round your final answer to 2 decimal places.)IRR %b) Should the product be introduced if the firm’s cost of capital is 6%?
The consulting company Maggi has been hired to value the company Bolli AS, Bolli expects one operating profit of NOK 400 million in 2023. The company is expected to grow by 2.25% in year, and achieves a 9% return on invested capital. Bolli is 100% equity financed and the cost of equity is 10%. a) What is the investment rate for Bolli? b) What is the value of the company in 2022? c) Maggi believes that growth in the future will be higher than 2.25%, they believe that it is more likely to be 4.5%. What is the value of Bolli in 2022 if this growth is used as a basis. the value calculation?
1LMN Corporation has projected that their performance for the next five years will result to the following (see table below). The corporation owns a property originally acquired at P5 million with useful life of 10 years. The terminal value was assumed based on the growth rate of the cash flows. Capital investment is needed on Year 1 amounting to P1 million. Income tax rate is at 30%. The required rate of return for this business is 12%. Calculate the maximum price at which an investor will purchase 40% of LMN Corporation (round the growth rate to four decimal point).
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Hernandez Corporation expects to have the following data during the coming year. What is Hernandez's expected ROE? (Show your work) Assets = $200,000 D/A = 65% EBIT = $25,000 Interest rate = 8% Tax rate = 40%
An electronic company is thinking of investing to an equipment in a new business venture with a 15% minimum attractive rate of return. The following in the table are the estimates that were drawn by the firm. Determine how sensitive the business is to the estimates on the: $30,000 $20,000 $5,000 $1,000 5 years Capital investment Annual revenues c. Capital investment d. Annual revenue Annual expenses Market value Useful life State your conclusion.
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What is the percentage expected annual rate of return on a $1 million investment for a 25% interest in a company? In 2 years, the company will be acquired for $7 million. The correct