Consider the following expected net cash flows for a project:Year01234.5Expected NCFAnswer:$(100,000)80,00060,00070,00010,00010,000Certainty Equivalent Factor1.00.50.50.50.60.4Certainty EcFlowsYour boss wants you to calculate the NPV of this project and says to use the annual risk-free rate of 3% as a discount rate. Calculate NPV using this discount rate, without any riskadjustment.

The net present value compares the present value of anticipated cash inflows and the expenditures to…

Your boss wants you to calculate the NPV of this project and says to use the annual risk- free rate of 3% as a discount rate. Calculate NPV using this discount rate, without any risk adjustment. Answer:

Your boss wants you to calculate the NPV of this project and says to use the annual risk- free rate of 3% as a discount rate. Calculate NPV using this discount rate, without any risk adjustment. 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

See similar textbooks

Related questions

Q: ssume that an investment is expected to generate the following returns: a 10% chance of a $1,400…

A: Expected rate of return is the expected rate based on the probability of happening the events and is…

Q: You are considering Project A, with the following information (Assume all statistics given are…

A: The Capital Asset Pricing Model (CAPM) explains the relative rate of return for an asset or project…

Q: You are considering investing in one of two projects, which have the following returns and…

A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: You are looking to assess the income for a project, and in the best case (optimistic) you expect and…

A: The calculation is: Note: Values are in K dollars.

Q: You are presented with the project that has risk less cash flow and you conclude that you can use…

A: The objective of the question is to calculate the present value of a project that pays $100 one year…

Q: Question 1 (10 points) The Internal Rate of Return is a financial measure that allows us to…

A: Internal rate of return is defined a discount rate that makes the NPV of all cash flows equals to 0.

Q: You look at the rate of returns, and the betas of different capital investment options. To determine…

A: Return as per CAPM (Er) = Rf + (Rm - Rf) X BWhere Rf= Risk free return, Rm = Market return and B =…

Q: (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year 0 Year…

A: NPV is the difference between present value of all cash inflows and initial investment. IRR is the…

Q: If you perform a NPV analysis on a perspective investment using a "d" = 15% and: a. the…

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: You are choosing between two projects, A and B. Project A has an IRR of 10% and Project B has an IRR…

A: The IRR of a project refers to the measure of the profitability of the project as it represents the…

Q: Note: Where discount factors are required, use only the present value tables (Appendix 1 and 2)…

A: Capital budgeting is a strategic financial planning process used by companies to evaluate and select…

Q: K You are choosing between two projects. The cash flows for the projects are given in the following…

Q: Your company is considering a project for which you oversee the analysis. The company has spent…

A: Hi, there, Thanks for posting the question. As per our Q&A honour code, we must answer the first…

Q: a. Calculate the project's NPV, IRR, MIRR, and payback. Do not round intermediate calculations.…

A: Net present value is determined by deducting the initial investment from the current value of cash…

Q: Please help me in calculating the Return on Investment and Break-Even Point, and please help me…

A: The amount of net income earned on the basis of capital employed is known as the return on…

Q: You have just assessed a project, involving an immediate cash outflow followed by a series of cash…

A: NPV is defined as the sum of the present values of all future cash inflows less the sum of the…

Q: Use the information provided to answer the questions. Use the information provided below to…

A: Net Present Value (NPV):A series of cash flows that take place at various points in time are covered…

Q: Suppose that you are considering two projects and only have the financial resources to choose one…

A: IRR of project A = 14.5% IRR of project B = 23.5% Cost of capital = 12%

Q: 2. Create a Figure (in Excel or similar) showing the value of the PVNB using different discount…

A: Consider a situation in which the initial cost of the project is $1,000,000 Cash inflow for the next…

Q: If a project has a profitability index of 1.20, then the project's internal rate of return is O…

A: The profitability index is used to determine the attractiveness of an investment. It is computed by…

Q: Investment in each of these projects can be made more than once given the funds are available. The…

A: 1. NPV means Net present value . 2. NPV is a capital budgeting technique used for making investment…

Q: Exercise No. 1 Suppose they offer us an investment project in which we have to invest $5,000.00 and…

A: Internal rate of return or IRR is the capital budgeting technique used to evaluate various…

Q: help please answer in text form with proper workings and explanation for each and every part and…

A: project'les IRR of 28.50% exceeds the required rate of return of 11% ,indicating profitability. both…

Q: Assume you are risk-averse and have the following three choices Standard Deviation $1,440 1,960…

A: Coefficient of variation computed as follows:-Coefficient of variation =

Q: 3 Which of the following methods of project analysis are biased towards short-term projects? Select…

A: when companies are evaluating investment projects, they often use different financial analysis…

Q: You must choose between the two projects below. What is the EMV for each? Looking at your own…

A: EMV of project is expected value of the project considering the probability situation of each…

Q: Suppose you have a medium risk-tolerance, and you want an annual return of $355. You decide to…

A: The amount to be invested in a portfolio is decided by the investor. Thereafter the weights of…

Q: You are a project manager for your company and you are faced with five potential projects that you…

A: Investors, company owners, and financial managers can use net present value (NPV) to evaluate the…

Q: Consider two project alternatives, project I and project II, with their payoffs and their associated…

A: RRI stands for Relative Risk Index. It is a financial metric used to assess the risk adjusted…

Q: Corporation is considering two possible investments and needs your help in determining which will be…

A: Here, Initial Outlay $ 131,000Salvage Value $ 39,300Net Annual Cash Inflows $ 29,500Minimum…

Q: Explain how the internal rate of return and net present value are related. If a project has an NPV…

A: In this question, we are required to determine how IRR and NPV are related and what is the IRR.

Q: Assume that you are faced with an opportunity made up of three equally likely outcomes. If the first…

A: Here, To Find: How much amount would be paid to take the risk =?

Q: A good approximation to use for the return on an average-risk project would be today’s interest rate…

A: A risk premium is the additional return or compensation that an investor demands for taking on…

Q: You are considering an investment. After a great deal of careful research you determine that the…

Q: If you have a project combined with above-average market risk, which one of the following decisions…

A: WACC is the average rate cost of capital calculated by multiplying the cost of funds by its weight.…

Q: The NPV of a project is negative when the discount rate at 8%, but is positive when the discount…

A: IRR is internal rate of return. Internal rate of return is the discount rate where NPV i.e. net…

Q: Consider the given problem. If your risk-adjusted discount rate is 18%, is this project justifiable?

A: NPV is the net current worth of cash flows that are expected to occur in the future.

Q: When comparing two projects with different lives, why do you compute an annuity with an equivalent…

A: When life of two mutually exclusive projects are different than NPV method does not give…

Q: There are two types of projects in the market: A (safer) and B (riskier). At time 1, the payoff of A…

A: Face value of loan:The face value of a loan represents the initial principal amount borrowed by the…

Q: se that a project has a unique IRR=20%. The hurdle rate is 25%. Your boss says this means you should…

A: Introduction : A hurdle rate can be understood as the minimal rate of return demanded by a…

Q: What is the incremental profit? To get a rough project's profitability, what is the project's…

A: Profit represents the economic benefit realized when income from a business activity exceeds the…

Q: Suppose that you found the probabilities and expected NPVs of 3 scenarios for a timing option:…

A: 1) Computation of expected NPV:

Q: 4. NPV profile of a project Given the following cash flow of Project L-2, draw the NPV profile.…

A: NPV stands for net present value. It is the sum of present values of all cash flows of a project.NPV…

Q: 10) Which of the following two options for purchasing an equipment has a lower net present cost?…

A: Net present cost of the projects helps in ascertainment of present values of future cash flows over…

Question

Consider the following expected net cash flows for a project:
Year
0
1
2
3
4.
5
Expected NCF
Answer:
$(100,000)
80,000
60,000
70,000
10,000
10,000
Certainty Equivalent Factor
1.0
0.5
0.5
0.5
0.6
0.4
Certainty Ec
Flows
Your boss wants you to calculate the NPV of this project and says to use the annual risk-
free rate of 3% as a discount rate. Calculate NPV using this discount rate, without any risk
adjustment.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Computation of the net present value

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

You are researching interest rates and their forecasts. Your research provides you with the following: 1-year rate = 6% 2-year rate = 6.125% 3-year rate = 8.5% 1-year rate, 2 years from now = 6.5% Assuming you can borrow $1 million, can you use this interest rate information to earn some risk-free profit. if yes, compute the profit. Show detailed workings. Assume that the pure expectations theory applies.
Please last follow instructions
Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investment I Estimated BTIRR Investment II Optimistic 0.20 0.15 0.20 Most likely 0.60 0.10 0.15 Pessimistic 0.20 0.05 0.05 1.00 Riskless is aware that the pattern of returns for Investment II looks very attractive relative to Investment I; however, he believes that Investment II could be more risky than Investment I. He would like to compare the two investments considering both the risk and return on each. Required: a. Compute BTIRR under each of the three possible scenarios. b. Compute variance and standard deviation of the IRRs.
Please double check your work !! the answer is not 50.55 or 37.52 % You are considering an investment project with the cash flows of -300 (the initial cash flow), 800 (cash flow at year 1), -200 (cash flow at year 2). Given the discount rate of 10%, compute the Modified Internal Rate of Return (MIRR) using the discountingapproach. 50.55% 19.72% 71.94% 37.52%
Office of Business Administration tells you that Villa Apartment has a project to expand the current operations and the estimated internal rate of return is 12.2%. The Villa Apartment's WACC is 11.8%. Based on all of these, you can safely conclude the: O appropriate discount rate for the project is between 11.8% and 12.2%. O expansion should be undertaken as it has a positive net present value. O project has slightly more risk than the firm's current operations. O project will have a lower debt-equity ratio than the firm's current operations.
Basic NPV methods tell us that the value of a project today is NPV0. Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1. Why then do we see some firms choosing to defer taking on a project. Be complete and thorough in your answer.
You are evaluating a project that costs $75,000 today. The project has an inflow of $ 155,000 in one year and an outflow of $65,000 in two years. What are the IRRs for the project? What discount rate results in the maximum NPV for this project? How can you determine that this is the maximum NPV?
Consider an investment where the cash flows are: – $946.21 at time t = 0 (negative since this is your initial investment) $377 at time t = 1 in years $204 at time t = 2 in years $499 at time t = 3 in years (a) Use Excel's "Solver" to find the internal rate of return (IRR) of this investment. Take a screen shot showing Solver open with your entries for the function clearly visible. Paste the screen shot into an application (like Paint), and save it as a (.png) file. Upload your screenshot below. (b) What is the value of IRR found by Solver?
You are choosing between two projects. The cash flows for the projects are given in the following table ( $ million ) : What are the IRRs of the two projects? If your discount rate is 5.4 % , what are the NPVs of the two projects? Why do IRR and NPV rank the two projects differently?
Mf4. 1. Calculate the Payback period 2. Calculate the Net Present Value (NPV) of both projects 3. Calculate the Internal Rate of Return (IRR) of both projects 4. Critically discuss the merits of each investment appraisal method, then discuss the result of the evaluations you have made of the two projects and advise the company which project should be undertaken
Suppose that we make contributions to a fund of $125 today and $750 in twoyears for a return of $1000 in one year. First write the Net Present Value as a function of the discount factor ν. Secondly, use the NPV to calculate the yield rate of this investment (select the larger value for i. Finally, explain whether or not this is a good investment for us. Please show all work
You are evaluating five investment projects. You already calculated the rate of return for each alternative investment and incremental rate of return between the two alternatives as well. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. Investment Alternative Initial Investment ($) Rate of Return (%) Rate of Return on Incremental Investment (%) A CDE A B C D E b.Select E. c. Select B. 35,000 45,000 d. Do nothing. 50,000 65,000 80,000 12 15 13 20 18 B 28 20 36 27 12 40 22 If all investment alternatives are mutually exclusive and the MARR is 12%, which alternative should be chosen? a. Select D. 42 25 -5

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS