Full solution in this question You can buy a computer system today for $50,000 which will last for 4 years from the date ofinstallation. The PV of savings are expected to be $70,000, the NPV of this investment is $20,000.However, you know that these systems are dropping in price every year. When should you purchasethe computer? Please provide an explanation for this Investment Timing Problem

To decide when to purchase the computer system, considering the system's price drops every year, one…

Answered: You can buy a computer system today for…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

See similar textbooks

Similar questions

A new computer system will require an initial outlay of $19,000, but it will increase the firm’s cash flows by $3,800 a year for each of the next 8 years. Calculate the NPV and decide if the system is worth installing if the required rate of return is 9%. Calculate the NPV and decide if the system is worth installing if the required rate of return is 14%. How high can the discount rate be before you would reject the project
A computer call center is going to replace all of its incandescent lamps with more energy-efficient fluorescent lighting fixtures. The total energy savings are estimated to be $1,875 per year, and the cost of purchasing and installing the fluorescent fixtures is $4,900. The study period is five years, and terminal market values for the fixtures are negligible. Solve, a. What is the IRR of this investment? b. What is the simple payback period of the investment? c. Is there a conflict in the answers to Parts (a) and (b)?List your assumptions. d. The simple payback “rate of return” is 1/θ. How close does this metric come to matching your answer in Part (a)?
A security that costs $89.90 will provide a return of 6.5 percent per year. If you want to keep the investment until it grows to a value of $143.8, how long will you have to keep it? (Hint: use log() function to solve for the number of years you have to keep it, and round the answer to the nearest whole number.)
Need help with a and b. Also how high can the discount rate be before you would reject the project?
You decide to open a new restaurant. The initial cost ( investment) is 750 000 TL. The forecasted cash flows that you expect to gain from this restaurant are 150 000 TL every year for 9 years. If the discount rate is %28, calculate the net present value (NPV), and is this a feasible project?
A computer call center is going to replace all of its incandescent lamps with more energy efficient fluorescent lighting fixtures. The total energy savings are estimated to be $2,084 per year, and the cost of purchasing and installing the fluorescent fixtures is $4,500. The study period is four years, and terminal market values for the fixtures are negligible. a. What is the IRR of this investment? b. What is the simple payback period of the investment? c. Is there a conflict in the answers to Parts (a) and (b)? List your assumptions. d. The simple payback "rate of return" is 1/0. a. The IRR of the investment is%. (Round to one decimal place.) b. The simple payback period of the investment is years. (Round up to the next whole number.) c. Select all the correct assumptions below. A. The value of 0 may indicate a poor project in terms of liquidity. B. The value of 0 may indicate the best project in terms of liquidity. C. The IRR will signal an acceptable (profitable) project if the MARR…
You are considering purchasing a robot to increase the capacity of your plant, therefore, increasing sales. The expected cash flows in a 3-year horizon are $50,000 in the first year, $60,000 in year 2 and $63,000 in year 3. If your interest rate is 10% in the first two years and 12% in year 3, what would be your maximum offer on this robot? How long does triple your money at 15% interest take?
You have just been offered a contract worth $1.14 million per year for 6 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 11.6%. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? The most you can pay for the equipment and achieve the 11.6% annual return is $______ Million. (Round to two decimal places)
An alternative investment product of gorilla glue is expected to generate cash flows of 81,000 every 3 years. Beginning 3 years from now. Your money right now is invested in a savings account earning 7.2% EAR if the investment product is the same exact risk as your savings account, what is the value today of the gorilla glue investment product?
Dunder Mitfin plans to install a computer system to measure the dimensions of products so thar the proper size boxes can be used to ship items. This well save packing materials, cardboard, and labor. If the savings will be $132310 the first year and increases by $ 9521each year for 9 years. What is the present worth of the system at an interest rate of 12%.Write your answer to two decimal places
You are considering investing in a project that will cost $210,000. The net annual cash flows from the project are projected to be $62,000 per year for the next five years. You as an investor require a rate of return of 9% on all of your investments. Using the above information, solve for the following: What is the initial cash outflow? Using the payback period method, how many years will it take to recapture the initial cost of the investment? Using the net present value method (NPV), what is the net present value of this project? What is the profitability index (PI) of this project?
You are considering a risk-free investment that costs $4000 and pays $5000 in one year. You can either pay all cash for the investment or you can borrow part and pay cash for the other part. If you borrow $2000, you will be required to pay back $2080 in one year. The risk-free rate is 4%. What is the project’s NPV? Is the NPV affected if you borrow some of the funds?

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Pfin (with Mindtap, 1 Term Printed Access Card) (…

Finance

ISBN:

9780357033609

Author:

Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:

Cengage Learning

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS