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%.

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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.

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6. Calculate the price of a dividend paying stock using the following information, assuming the price is equal to the present value of all future dividends one will receive from owning the stock. (Hint: treat the stock as a growing perpetuity) Dividend $4.50 Growth rate 2% Required return 12% *

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.

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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.

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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.

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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