You are considering two investment options.In option A, you have to invest RM4000 now and RM1000 three years from now.In option B. you have to invest RM2500 now, RM1500 a year from now, andRM1000 three years from now.In both options, you will receive four annual income of RM3000 each. (You willget the first payment a year from now.)Which of these options would you choose based on (a) the conventional paybackcriterion, and (b) the present worth criterion, assuming 13% interest?Based on conventional payback periodmethod, choose either (A/B/Both)PW Option APW Option BBased on PW analysis method, chooseOption (A or B)Submit:A: 9290.7: 6602.9:AFormatFormatFormatFormat

Conventional payback period is the total period which will payback the initial investment of a…

Answered: You are considering two investment…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose you are contemplating buying a collector's edition of a John Maynard Keynes Action Figure. You would have to make a down payment today of $1,000 and then pay $1,875 at the end of two years from now (ie year 2). If you buy it today, a year from today ( ie year 1), you would sell the Action Figure for $2,750. Your minimum acceptable rate of return (MARR) is 20%. Find the positive breakeven interest rates on your potential investment. b. Determine whether this is a pure investment. (Use only one breakeven interest rate in your calculation – doesn't matter which one). C. Suppose you use the modified internal rate of return MIRR to evaluate investments. Calculate MIRR and determine if you should buy the Action Figure. (Note: use MARR when evaluating both cash inflows and cash outflows). d. Find the True IRR (You may assume that i is such that PB1 >0) and determine if you should buy the Action Figure.
Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose): 1. $8,750 a year at the end of each of the next seven years 2. $50,050 (lump sum) now 3. $98,650 (lump sum) seven years from now Calculate the present value of each scenario using a 6% interest rate. Which scenario yields the highest present value? Would your preference change if you used a 12% interest rate? (Click the icon to view the present value (Click the icon to view the present value annuity factor table.) factor table.) (Click the icon to view the future value annuity factor table.) factor table.) (Glick the icon to view the future value Using a 6% interest rate, calculate the present values for each scenario. (Round the amounts to the nearest dollar.) Present value of Scenario 1
Your brother wants to borrow $10,750 from you. He has offered to pay you back $12,250 in a year. If the cost of capital of this investment opportunity is 11%, what is its NPV? Should you undertake the investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. If the cost of capital of this investment opportunity is 11%, the NPV of the investment is $ (Round to the nearest cent.)
Suppose you are offered the alternative of receiving either $3,000 at the end of 8 years or $2,000 today. What interest would make you indifferent to your choice between $2,000 and the promise of $3,000 at the end of eight years?
Suppose an investor, Erik, is offered the investment opportunities described in the table below. Each investment costs $1,000 today and provides a payoff, also described below, one year from now. Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000; 50% chance of receiving $1,200 3 50% chance of receiving $200; 50% chance of receiving $2,000 If Erik is risk averse, which investment will he prefer? The investor will choose option 1. The investor will choose option 2. The investor will choose option 3. The investor will be indifferent toward these options. Which kind of stock is most affected by changes in risk aversion? High-beta stocks Low-beta stocks All stocks are affected the same, regardless of beta. Medium-beta stocks
You are considering two savings options. Both options offer a rate of return of 8.2 percent. The first option is to save $1,500, $1,500, and $2,000 at the end of each year for the next three years, respectively. The other option is to save one lump sum amount today. You want to have the same balance in your savings account at the end of the three years, regardless of the savings method you select. If you select the lump sum method, how much do you need to save today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Your grandfather has offered you a choice of one of the three alternatives: 1. Take Rs. 500,000 now 2. Take Rs 100,000 a year for eight years, or 3. Take Rs 1200,000 at the end of eight years. Required: 1. Assume you could earn 11% per annum, which alternative should you choose? 2. If you could earn 12% per annum, would you still choose the same alternative?
You were offered RM2075.30, 10 years from now in return for an investment of RM800. Calculate the annual rate of interest you would earn if you took the offer
You are looking at investing in undeveloped land that you expect might be worth $2138713 in 9 years. Based on the risk of the property, you require a return of 8.85%. What is the most you should be willing to pay for it today? enter only numbers and decimals in your response. Round to 2 decimal places. Use your financial calcuator.
You are offered a 3 year investment opportunity that requires investing USD 1,505 today. The investment will pay you an income of USD 66 in year 1. USD 76 in year 2 and USD 73 in year 3. At the end of year 3, it will also pay a total sum of USD 2,227. THE current discount rate is 0.13 percent. Is the investment worth undertaking? Give your answer in 0.000.
Assume you won the lottery and that you have two options for receiving the prize money. You can receive $300,000 today or receive payments of $2,700 a month for 20 years. If you can make a nominal 8% return, which option should you take and why? (Hint: To compare investments involving cash flows, you always compare the present value of the future cash flows to identify the most attractive option.) Multiple Choice The $2,700 per month. It is better to have payments spread out than receive a lump sum. The lump sum today. The present value of the lump sum is greater than the payments. The $2,700 per month. The present value of the payments is greater than the lump sum. The lump sum today. It has greater earnings potential. 27
An investor is considering two investment projects. Project A requires an initial payment of £11,000. In return, the investor will receive a payment of £15,200 after one year. Project B requires an initial payment of £10,000. In return, the investor will receive a payment of £1,120 at the end of every month for one year. Calculate the cross-over rate of the projects Enter a percentage correct to 1 decimal place. What is the payback period of each project? Project A: months Project B: months

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