To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows: Estimated the cash flows which is expected to be generated from the project or asset Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project Determine the present value of all the expected cash flows, this is done by using the below equation PV of CF = C F ^ 1 ( 1 + r ) 1 + C F ^ 2 ( 1 + r ) 2 + ....... + C F n ^ ( 1 + r ) n = ∑ t = 1 n C F t ^ ( 1 + r ) t Here, Expected net cash flow in Period t is “ C F t ^ ” Required rate of return is “ r ” Now, compare the present value of future expected cash flows with the cost of the project. If the present value of cash inflows is higher than the present value of the cost of the asset or project, the project shall be accepted, as it would generate profit. A company is expected to generate $36,950 per year for the next six years. The required rate of return is 10%.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 9, Problem 1PROB

Summary Introduction

To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows:

Estimated the cash flows which is expected to be generated from the project or asset

Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project

Determine the present value of all the expected cash flows, this is done by using the below equation

PV of CF=CF^1(1+r)1+CF^2(1+r)2+.......+CFn^(1+r)n=∑t=1nCFt^(1+r)t

Here,

Expected net cash flow in Period t is “CFt^”

Required rate of return is “r”

Now, compare the present value of future expected cash flows with the cost of the project. If the present value of cash inflows is higher than the present value of the cost of the asset or project, the project shall be accepted, as it would generate profit.

A company is expected to generate $36,950 per year for the next six years. The required rate of return is 10%.

Expert Solution & Answer

Explanation of Solution

Present value of the cash flows of $36,950 for 6 years at 10% can be calculated using present value annuity formula as below:

PV of CF=CF×[1−(1+r)−nr] =$36,950×[1−(1+0.10)−60.10] =$36,950×[1−0.5644739300537770.10] =$36,950×0.4355260699462230.10 =$160,926.882845129 or $160,926.88

Therefore, the value of the project would be $160,926.88.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Explain why long-term bonds are subject to greater interest rate risk than short-term bonds with references or practical examples.

What does it mean when a bond is referred to as a convertible bond? Would a convertible bond be more or less attractive to a bond holder than a non-convertible bond? Explain in detail with examples or academic references.

Alfa international paid $2.00 annual dividend on common stock and promises that the dividend will grow by 4% per year, if the stock’s market price for today is $20, what is required rate of return?

Answer 2

Question

Chapter 9, Problem 1PROB

Summary Introduction

To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows:

Estimated the cash flows which is expected to be generated from the project or asset

Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project

Determine the present value of all the expected cash flows, this is done by using the below equation

PV of CF=CF^1(1+r)1+CF^2(1+r)2+.......+CFn^(1+r)n=∑t=1nCFt^(1+r)t

Here,

Expected net cash flow in Period t is “CFt^”

Required rate of return is “r”

Now, compare the present value of future expected cash flows with the cost of the project. If the present value of cash inflows is higher than the present value of the cost of the asset or project, the project shall be accepted, as it would generate profit.

A company is expected to generate $36,950 per year for the next six years. The required rate of return is 10%.

Expert Solution & Answer

Explanation of Solution

Present value of the cash flows of $36,950 for 6 years at 10% can be calculated using present value annuity formula as below:

PV of CF=CF×[1−(1+r)−nr] =$36,950×[1−(1+0.10)−60.10] =$36,950×[1−0.5644739300537770.10] =$36,950×0.4355260699462230.10 =$160,926.882845129 or $160,926.88

Therefore, the value of the project would be $160,926.88.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 9, Problem 1PROB

Summary Introduction

To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows:

Estimated the cash flows which is expected to be generated from the project or asset

Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project

Determine the present value of all the expected cash flows, this is done by using the below equation

PV of CF=CF^1(1+r)1+CF^2(1+r)2+.......+CFn^(1+r)n=∑t=1nCFt^(1+r)t

Here,

Expected net cash flow in Period t is “CFt^”

Required rate of return is “r”

Now, compare the present value of future expected cash flows with the cost of the project. If the present value of cash inflows is higher than the present value of the cost of the asset or project, the project shall be accepted, as it would generate profit.

A company is expected to generate $36,950 per year for the next six years. The required rate of return is 10%.

Expert Solution & Answer

Explanation of Solution

Present value of the cash flows of $36,950 for 6 years at 10% can be calculated using present value annuity formula as below:

PV of CF=CF×[1−(1+r)−nr] =$36,950×[1−(1+0.10)−60.10] =$36,950×[1−0.5644739300537770.10] =$36,950×0.4355260699462230.10 =$160,926.882845129 or $160,926.88

Therefore, the value of the project would be $160,926.88.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 9, Problem 1PROB

Summary Introduction

To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows:

Estimated the cash flows which is expected to be generated from the project or asset

Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project

Determine the present value of all the expected cash flows, this is done by using the below equation

PV of CF=CF^1(1+r)1+CF^2(1+r)2+.......+CFn^(1+r)n=∑t=1nCFt^(1+r)t

Here,

Expected net cash flow in Period t is “CFt^”

Required rate of return is “r”

Now, compare the present value of future expected cash flows with the cost of the project. If the present value of cash inflows is higher than the present value of the cost of the asset or project, the project shall be accepted, as it would generate profit.

A company is expected to generate $36,950 per year for the next six years. The required rate of return is 10%.

Expert Solution & Answer

Explanation of Solution

Present value of the cash flows of $36,950 for 6 years at 10% can be calculated using present value annuity formula as below:

PV of CF=CF×[1−(1+r)−nr] =$36,950×[1−(1+0.10)−60.10] =$36,950×[1−0.5644739300537770.10] =$36,950×0.4355260699462230.10 =$160,926.882845129 or $160,926.88

Therefore, the value of the project would be $160,926.88.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 9, Problem 1PROB

Summary Introduction

To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows:

Estimated the cash flows which is expected to be generated from the project or asset

Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project

Determine the present value of all the expected cash flows, this is done by using the below equation

PV of CF=CF^1(1+r)1+CF^2(1+r)2+.......+CFn^(1+r)n=∑t=1nCFt^(1+r)t

Here,

Expected net cash flow in Period t is “CFt^”

Required rate of return is “r”

Now, compare the present value of future expected cash flows with the cost of the project. If the present value of cash inflows is higher than the present value of the cost of the asset or project, the project shall be accepted, as it would generate profit.

A company is expected to generate $36,950 per year for the next six years. The required rate of return is 10%.

Expert Solution & Answer

Explanation of Solution

Present value of the cash flows of $36,950 for 6 years at 10% can be calculated using present value annuity formula as below:

PV of CF=CF×[1−(1+r)−nr] =$36,950×[1−(1+0.10)−60.10] =$36,950×[1−0.5644739300537770.10] =$36,950×0.4355260699462230.10 =$160,926.882845129 or $160,926.88

Therefore, the value of the project would be $160,926.88.

Answer 6

Chapter 9, Problem 1PROB

Summary Introduction

To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows:

Estimated the cash flows which is expected to be generated from the project or asset

Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project

Determine the present value of all the expected cash flows, this is done by using the below equation

PV of CF=CF^1(1+r)1+CF^2(1+r)2+.......+CFn^(1+r)n=∑t=1nCFt^(1+r)t

Here,

Expected net cash flow in Period t is “CFt^”

Required rate of return is “r”

Now, compare the present value of future expected cash flows with the cost of the project. If the present value of cash inflows is higher than the present value of the cost of the asset or project, the project shall be accepted, as it would generate profit.

A company is expected to generate $36,950 per year for the next six years. The required rate of return is 10%.

Expert Solution & Answer

Explanation of Solution

Present value of the cash flows of $36,950 for 6 years at 10% can be calculated using present value annuity formula as below:

PV of CF=CF×[1−(1+r)−nr] =$36,950×[1−(1+0.10)−60.10] =$36,950×[1−0.5644739300537770.10] =$36,950×0.4355260699462230.10 =$160,926.882845129 or $160,926.88

Therefore, the value of the project would be $160,926.88.

Answer 7

Chapter 9, Problem 1PROB

Summary Introduction

To make capital budgeting decision, it is required that the asset and or projects are properly evaluated. This is done as follows:

Estimated the cash flows which is expected to be generated from the project or asset

Evaluate the riskiness of the project and determine an appropriate discount rate specific for the project

Determine the present value of all the expected cash flows, this is done by using the below equation

PV of CF=CF^1(1+r)1+CF^2(1+r)2+.......+CFn^(1+r)n=∑t=1nCFt^(1+r)t

Here,

Expected net cash flow in Period t is “CFt^”

Required rate of return is “r”

Now, compare the present value of future expected cash flows with the cost of the project. If the present value of cash inflows is higher than the present value of the cost of the asset or project, the project shall be accepted, as it would generate profit.

A company is expected to generate $36,950 per year for the next six years. The required rate of return is 10%.

Answer 8

Expert Solution & Answer

Explanation of Solution

Present value of the cash flows of $36,950 for 6 years at 10% can be calculated using present value annuity formula as below:

PV of CF=CF×[1−(1+r)−nr] =$36,950×[1−(1+0.10)−60.10] =$36,950×[1−0.5644739300537770.10] =$36,950×0.4355260699462230.10 =$160,926.882845129 or $160,926.88