You have been assigned to check the valuation of InfoSystems, a software firm, done by a colleague of you. Infosystems has an expected life 5 years, constant cash flows over this period, and zero salvage value. The income statement of the Infosystems is given as follows: Revenues - Operating Expenses EBIT - Interest expenses Taxable Income - Taxes Net Income Years 1-5 €1,000 €550 €450 €85 €365 €146 €219 Infosystems has no capital expenditures, depreciation or working capital needs, i.e. the earnings are the cash flows to the firm. The cost of capital is 10% i. Estimate the value of Infosystems. ii. Assume that the value derived in (i) is the one also estimated by your colleague. How would you change your calculations if you are given that the cash flows are real cash flows and the cost of capital is the nominal cost of capital. The expected inflation rate is 2% annually. Comment on your answer.

You have been assigned to check the valuation of InfoSystems, a software firm, done by a colleague of you. Infosystems has an expected life 5 years, constant cash flows over this period, and zero salvage value. The income statement of the Infosystems is given as follows: Revenues - Operating Expenses EBIT - Interest expenses Taxable Income - Taxes Net Income Years 1-5 €1,000 €550 €450 €85 €365 €146 €219 Infosystems has no capital expenditures, depreciation or working capital needs, i.e. the earnings are the cash flows to the firm. The cost of capital is 10% i. Estimate the value of Infosystems. ii. Assume that the value derived in (i) is the one also estimated by your colleague. How would you change your calculations if you are given that the cash flows are real cash flows and the cost of capital is the nominal cost of capital. The expected inflation rate is 2% annually. Comment on your answer.

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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A company is evaluating an investment. The company uses the straight-line method of depreciation. Use the following information to compute the accounting rate of return. Show your calculations and round to one decimal place. Project Investment SR875,000 Residual value 0 Operating income: Year 1 120,000 Year 2 120,000 Year 3 120,000 Year 4 120,000 Year 5 120,000
A company is thinking of investing in one of two potential new products for sale. The projections are as follows: Year Revenue/cost £ (Product A) Revenue/cost £ (Product B)0 (150,000) outlay (150,000) outlay 1 24,000 12,0002 24,000 25,3333 44,000 52,0004 84,000 63,333 Calculate NPV of both products (to 1 d.p.) assuming a discount rate of 7%. Which product should be chosen and why?
Complete the projected income statement for the first five years of the project. Fill in the following details , Determine the PAT of the project as a banker will you finance them on the basis of PAT Year 1 2 3 4 Capacity utilization (%) 55 65 75 85 85 Sales Operating expenses Material Salaries Marketing & other 119 137 155 173 173 expenses PBDIT Depreciation 236.92 180.10 137.38 105.20 80.98 Prelm. Exp. Wloff 10 10 10 10 10 PBIT Int. on TL Int. on WC loan 4.50 4.50 4.50 4.50 4.50
Using the provided information calculate the NPV Mkhize Ltd is considering buying a machine and has presented the following information; Purchase price Expected economic life Minimum required rate of return Net cash inflows Rate of taxation Depreciation is calculated using the straight-line method A. Positive R12,883 B. Negative R9,086 OC. Positive R10,089 OD. Negative R988 R130 000 10 years 12% R25000 30%
An asset was purchased for P66,000. The asset is expected to last for 6 years and will have a salvage value of P16,000. The company expects the income before tax to be P7,200 and the tax rate of the company is 30%. What is the average return on investment (accounting rate of return)? Group of answer choices 17.6% 12.3% 7.6% 10.9%
DT Ltd. provides you the following information: 1. Purchase price of machine Rs. 1,90,000 2. Installation expenses Rs. 10,000 3. Useful life of machine 5 years 4. Salvage value at the end of useful life nil 5. Tax Rate 30% 6. Cost of capital 10% 7. Cash flows before depreciation and tax Rs. 1,00,000 p.a. Required: Calculate the Discounted Payback Period.
Tech Techies Company has a project available with the following cash flows :Year Cash Flow0 -$16,8001 $6,9002 $8,2003 $3,5004 $3,100What is the payback period?a) 1 yearb) 2 yearsc) 3 years
An asset was purchased for P66,000. The asset is expected to last for 6 years and will have a salvage value of P16,000. The company expects the income before tax to be P7,200 and the tax rate of the company is 30%. What is the average return on investment (accounting rate of return)? choices: 17.6% 12.3% 7.6% 10.9%
Azimuth Company was considering the purchase of equipment. Details on the equipment are as follows: Year Original Investment Cash Flow 0 $200,000 1 $ 40,000 2 40,000 3 60,000 4 40,000 5 60,000 6 30,000 What is the payback period in years, assuming no taxes are paid? Group of answer choices 5.00 4.00 3.85 4.33
Use the following information to calculate, to one decimal place, the return on assets (ROA) for FY21: FY21 FY20 $m $m Total assets 5,887 5,000 Finance costs 50 Тах expense 300 Profit 700
Dogwood Company is considering a capital investment in machinery: (Click the icon to view the data.) 8. Calculate the payback. 9. Calculate the ARR. Round the percentage to two decimal places. 10. Based on your answers to the above questions, should Dogwood invest in the machinery? 8. Calculate the payback. Amount invested Expected annual net cash inflow Payback 1,500,000 24 500,000 3 years 9. Calculate the ARR. Round the percentage to two decimal places. Average annual operating income Average amount invested ARR Data Table Initial investment $ 1,500,000 Residual value 350,000 Expected annual net cash inflows 500,000 Expected useful life 4 years Required rate of return 15%
What is the payback period for an investment of $10000 with net revenues as follows: year 1: $5000, Year 2: $3000, Year 3: $2000, Year 4: $5000, Year 5: $3000. A. 2 years B. 3 years C. 4 years D. 5 years

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