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

1. Give one new distribution channels for Virtual Assistance (freelance business) that is not commonly used. - show a chart/diagram to illustrate the flow of the distribution channels. - explain the rationale behind it. (e.g., increased market reach, improved customer experience, cost-efficiency). - connect the given distribution channel to the marketing mix: (How does it align with the overall marketing strategy? Consider product, price, promotion, and place.). - define the target audience: (Age, gender, location, interests, etc.). - lastly, identify potential participants: (Wholesalers, retailers, online platforms, etc.)

An individual is planning for retirement and aims to withdraw $100,000 at the beginning of each year, starting from the first year of retirement, for an expected retirement period of 20 years. To fund this retirement plan, he intends to make 20 equal annual deposits at the end of each year during his working years. Assume a simple annual interest rate of 20% during his working years and a simple annual interest rate of 5% during retirement. What should his annual deposit amount be to achieve his desired retirement withdrawals? Please write down the steps of your calculation and explain result economic meaning.

Assume an investor buys a share of stock for $18 at t=0 and at the end of the next year (t=1), he buys 12 shares with a unit price of $9 per share. At the end of Year 2 (t=2), the investor sells all shares for $40 per share. At the end of each year in the holding period, the stock paid a $5.00 per share dividend. What is the annual time-weighted rate of return? Please write down the steps of your calculation and explain result economic meaning.

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