You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now After-Tax Cash Flow -60 17 1-10 The project's beta is 1.2. a. Assuming that re= 6% and Er) = 14%, what is the net present value of the project? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Net present value b. What is the highest possible beta estimate for the project before its NPV becomes negative? (Round your answer to 2 decimal places.) Highest beta

You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now After-Tax Cash Flow -60 17 1-10 The project's beta is 1.2. a. Assuming that re= 6% and Er) = 14%, what is the net present value of the project? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Net present value b. What is the highest possible beta estimate for the project before its NPV becomes negative? (Round your answer to 2 decimal places.) Highest beta

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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2.1 Calculate the Payback Period of both projects (answers expressed in years, months and days.) Which project would you choose on the basis of payback period? Why?2.2 Calculate the Accounting Rate of Return for both projects (answer expressed to two decimal places).2.3 Calculate the Net Present Value for both projects. (Round off amounts to the nearest Rand.)2.4 Based on your calculations from 2.1 – 2.3, which project should Rothmans Limited choose? Why? .
The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (1) Cash Flow (II) -$ -$ 0 55,000 1 25,000 2 25,000 3 25,000 a-1. If the required return is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project I Project II 18,900 10,150 10,150 10,150 a- If the company applies the profitability index decision rule, which project should the 2. firm accept? Project I O Project II Project I Project II 1. b- What is the NPV for both projects? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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Coore Manufacturing has the following two possible projects. The required return is 12 percent. Year Project Y Project Z 0 -$27,500 -$55,000 1 13,500 19,500 234 2 11,900 26,000 3 14,300 17,500 9,900 24,000 a. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which, if either, of the projects should the company accept? a. Project Y Project Z 1.38 ง b. Project Y 3 decimal places required. Project Z c. Accept project x
1) Rainbow Corp. is considering an investment whereby it will invest $100 in a perpetuity that will pay the firm $30 annually forever, starting one year from now. If the firm has a payaback period of 3 years, will it do the project? a) Yes b) No 2) If Rainbow has a cost of capital of 10%, will it invest in the project when doing an NPV analysis? a) Yes b) No
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: Cash flow: Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) MIRR 0 1 2 4 5 -$240,000 $64,800 $83,000 $139,000 $121,000 $80, 200 rejected O accepted % Should it be accepted or rejected?
You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now 0 1-10 After-Tax Cash Flow -45 12 The project's beta is 1.4. Required: a. Assuming that ry=6% and E(M) = 14%, what is the net present value of the project? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the highest possible beta estimate for the project before its NPV becomes negative? Note: Round your answer to 2 decimal places. a. Net present value b. Highest beta
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