Your friend has almost convinced you to invest in his palm tree farm. It would require a 4,000 (OMR) initial investment on your part He promises you revenue (before expenses) of 500 (OMR) per year the first year and increasing by 50 (OMR) per year thereafter. Your share of the estimated annual expenses is 200 OMR). You figure you should invest for 8 years. Your friend has promised to buy put your share of the business at that time (end of year 8) for 7,000 (OMR). You nave decided to set a personal MARR of 18% per year. a) Draw a cash-flow diagram for this investment. b) Find IRR of the investment (use PW). Is it feasible investment? c) d) Find the conventional B-C ratio for this investment (use AW). What is your conclusion?

Your friend has almost convinced you to invest in his palm tree farm. It would require a 4,000 (OMR) initial investment on your part He promises you revenue (before expenses) of 500 (OMR) per year the first year and increasing by 50 (OMR) per year thereafter. Your share of the estimated annual expenses is 200 OMR). You figure you should invest for 8 years. Your friend has promised to buy put your share of the business at that time (end of year 8) for 7,000 (OMR). You nave decided to set a personal MARR of 18% per year. a) Draw a cash-flow diagram for this investment. b) Find IRR of the investment (use PW). Is it feasible investment? c) d) Find the conventional B-C ratio for this investment (use AW). What is your conclusion?

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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Similar questions

If you invest $15,000 in a long-term venture, you will receive $1,100 per year forever. The first earning is given two years after embarking on such investment Aside from the annual earnings, an additional $500 is earned every six years. Assuming your interest rate is 10% per year, what is the capitalized worth of your investment.
Assume that you and your family want to go on vacation in 5 years. You are planning to save for the trip. The estimated cost of the trip will be $10,000. You have found an investment that will pay 6% annual interest for the next 5 years. Using Excel, calculate the dollar amount that will be required to invest today to reach the financial expense for your vacation.
Your mother has asked you to help her with an investment. She has $6,000 to invest today for 3 years. You've identified a CD at a bank that pays a nominal rate of interest of 5.08%, with interest paid quarterly. What will be the value of this investment 3 years from now?
David wants to invest $1,500,000 so that he will have an accumulated amount of at least $2,500,000 after some years. He has two choices of investment A and investment B. Investment A offers him an semi-annual simple interest rate of 10% while investment B offers him an effective annual interest rate of 8% convertible annually. Which investment will help him reach his goal faster? Approximate the time that each investment will reach his goal.
If you invest $15,000 in a long-term venture, you will receive $1,100 per year forever. The first earning is given two years after embarking on such investment Aside from the annual earnings, an additional $500 is earned every six years. Assuming your interest rate is 10% per year, what is the capitalized worth of your investment.
Your group receives a phone proposal to invest in a new business. Thecaller informs you that it will take a $70,000 down payment and the investmentwill return $10,000 a year for the next 10 years. He tells you that theinvestment will return 14 percent. If current interest rates are 8 percent,what is the present value of this investment? How did the caller get14 percent?
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.)
A businessman plans to purchase a new house costing P 500 000. He can raise the building by issuing a 10%, 25-year-old bond that would pay P 150 000 interest per year and repay the face amount at maturity. Instead of buying the new house, he has the option of leasing it for P 140 000 per year, the first payment due one year from now. The building has an expected life for 25 years. If the interest charge for leasing is 8%, which is more favorable for the businessman, borrow and buy or lease?
A real estate property is on the market. You have estimated it will give you net cash flows of $5136 per month. You hope to sell it in 9 years for $308182. Your required return is 9.46%, how much should you be willing to pay for the property today? Answer:
The house you wish to buy costs Rs.30,000,000. The dealer has a special leasing arrangement where you pay Rs.1,700,000 today and Rs.450,000 per month for the next six years. If you purchase the house, you will pay it off in monthly payments over the next six years at required rate of return of 6 percent per annum. You believe that you will be able to sell the house for Rs.35,000,000 in six years. Required to calculate and answer the following : 1. What option will be beneficial for you either buying house in single payment or buying on lease. 2. Assume you purchase the house in onetime payment and sold it for 35,000,000 after six years on same interest rate compounding monthly will this be a good and profitable deal for you.
A businessman plans to purchase a new house costing P500000. He can raise the building by issuing a 10%, 25 year old bond that would pay P150000 interest per year and repay the face amount at maturity Instead of buying the new house, he has the option of leasing it for P140000 per year, the first payment due one year fron now. The building has an expected life for 25 years, If interest charge for leasing is 8%, which is more favorable for the businessman, borrow and buy or lease?
Suppose that you invest $50,000 into a downpayment on a $250,000 house, which has a price appreciation of 3% per year. Your mortgage is fixed at $ 36,000 per year, and your tenants pay you $24,000 per year. Property taxes, maintenance, and other expenses cost $5,000 per year. Suppose that after 25 years, you sell your property. Would it have been better to invest $ 50,000 in the stock market, assuming it has returns of 9% per year over the same time period (25 years)? Why? Show your calculations and justify your answer. For the purposes of this question, suppose that inflation is zero.

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