Problem about net present value Initial cost: $500,000 Annual energy saving: 100,000 kWh Present tariff: $1.2 per kWh Subsequent annual increase in tariff: $0.02 per kWh Nominal interest rate: 3% Project life: 10 years (i) Draw the cash flow diagram. (ii) simple payback period (iii) net present worth and (iv) internal rate of return.
Q: Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset…
A: Operating cash flows are sum of profit after tax and non cash expenses like depreciation.
Q: PREPARED BY THE CI, MGMT2023 3 Required: A. Calculate the initial outlay and depreciable value of…
A: Capital budgeting is a crucial financial process that businesses use to evaluate and make decisions…
Q: Radon Inc. is financing its new invention with issuance of 10 shares of 6 years 4.5% coupon bond…
A: The weighted average cost of capital refers to the average cost that the company incurs by employing…
Q: You observe the following quoted money market rates: Spot exchange rate 95-day Forward exchange rate…
A: The global market where currencies are traded is known as foreign exchange currency, or forex or FX.…
Q: You are given the following information about a portfolio you are to manage. For the long term, you…
A: Expected Drop in Index= (4250-4500)/4500= -5.56%
Q: Brandon is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that…
A: Portfolio return refers to how much gain or loss is incurred by an investment portfolio over a…
Q: The initial investment of SGD 20,000,000 can be financed using a bank loan at an interest rate of…
A: A currency swap is a financial arrangement where two parties exchange cash flows denominated in…
Q: Consider a four-year project with the following information: Initial fixed asset investment =…
A: Sensitivity analysis helps to determine that how sensitive values are with respect to change in…
Q: Your friend will sell you his coffee shop for $475,000, with "seller financing," at a 9.0% nominal…
A: The lump-sum amount which is termed as last payment and is done at the end of the loan period is…
Q: c-1. What is the NPV for each project? (Do not round Intermediate calculations and round your…
A: The payback period is a vital financial metric employed in capital budgeting to gauge the time…
Q: CompUSA Corp.'s projected net income is $280 million, its current target capital structure is 25%…
A: Financing of the project is the target of the management to opt for alternatives that have positive…
Q: A project with a life of 11 has an initial fixed asset investment of $10,920, an initial NWC…
A: equivalent annual cost refers to the cost that is incurred for the purpose of owning, maintaining,…
Q: Ignacio, Inc., had after-tax operating income last year of $1,197,000. Three sources of financing…
A: After tax cost of debt = Pretax cost of debt * (1 - tax rate)Stock returnAs per CAPME(ri) = Rf + Bi…
Q: You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of…
A: Here,Weight of Equity50%Weight of Debt50%Cost of Equity16%Cost of Debt7%Tax Rate30%Year1234EBITDA $…
Q: Penn Corporation is analyzing the possible acquisition of Teller Company. Both firms have no debt.…
A: Answer-aCash cost=66,000,000Equity cost =…
Q: The Carter Corporation, a firm in the 25% marginal tax bracket, with a 15% required rate of return…
A: Payback period: The time taken to recover the initial investment.NPV (Net Present Value): The…
Q: The company is considering a project involving the purchase of new equipment. Cost of equipment…
A: Net present value (NPV) refers to the capital budgeting technique that uses time value of money to…
Q: 2 Industrial Industries' bonds mature 5 years from today and have par value of $1,0 The bonds have a…
A: Price of bond is the present value of coupon payments plus present value of the par value of bond…
Q: Suppose you think WW stock is going to appreciate substantially in value over the next six months.…
A: Buying the call option means you are bullish on stock and will be benfitting if share price move…
Q: Walsh Company is considering three independent. projects, each of which requires a $3 million…
A: ParticularsCost of capitalIRRInvestment costProject H (High risk)17%18%$3,000,000.00Project M…
Q: You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner…
A: Net advantage to leasing(NAL) stands as a pivotal financial metric utilized to gauge the competitive…
Q: Assume that a firm expects to be able to liquidate the new machine, which cost $400, 000, at the end…
A: Terminal cash flow is the net cash inflow or outflow at the end of any project. It includes…
Q: times for raw materials for sweaters and the remainder for raw materials for jackets. How much of…
A: Order Processing Cost = $193,000Total no. of orders = 10Activity rate for allocation = $ 193,000 /…
Q: Hanover Tech is currently an all equity firm that has 600,000 shares of stock outstanding with a…
A: The value of the unlevered firm can be found by multiplying the price per share by the total number…
Q: Jacob Arrell Corporation has sales revenue of $9,500,000. The company's fixed costs total…
A: There is ratio called combined leverage which is the ratio of % change in EPS with respect to %…
Q: Amalgamated Industries is considering a 4-year project. The project is expected to generate…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: Blossom Corp, is considering purchasing one of two new diagnostic machines. Either machine would…
A: The profitability index is used to determine the attractiveness of an investment. It is computed by…
Q: Firm X needs to net $8,600,000 from the sale of common stock. Its investment banker has informed the…
A: Desired net to issuing firm = $8,600,000 Out-of-pocket costs = $300,000 Net proceeds per share =…
Q: Yields of zero - coupon bonds are Bond Years to Maturity Yield to Maturity A 1 6.00% B 27.50% The…
A: A bond is a kind of debt security issued by the government and private companies to the public for…
Q: You are given the following information concerning a stock and the market Year 2017 2018 2019 2020…
A: When the profit earned out of price difference is measured for equity security and the market…
Q: An investment project has annual cash inflows of $4,900, $3,400, $4,600, and $3,800, for the next…
A: Discounted payback period is an important capital budgeting metric. It is an improvement of the…
Q: If you invest $8,800, what is your rate of return if you will receive the following cash flows at…
A: Internal rate of return is the rate of return at which present value of cash flow is equal to…
Q: Bentley Corporation and Rolls Manufacturing are considering a merger. The possible states of the…
A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: Assume the following data concerning Mubadala company The company paid taxes of $900,000. The…
A: A financial indicator known as the weighted average cost of capital (WACC) shows how much money a…
Q: A single bank is considering two options: First, it can make a $200,000 mortgage loan for a customer…
A: Let's calculate the weighted risk for each type of loan and then determine the overall expected…
Q: Reference is made to the 2022 Balance Sheet of Tram-Ropes limited. Tram-Ropes Limited…
A: The objective of the question is to calculate the total market value of the firm's capital structure…
Q: Elle holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well…
A: According to Capital asset pricing model ,Rp = Rf+[b*(Rm-Rf)]whereRp= Required return of…
Q: Cullumber Company purchased 9-year, 9% bonds that pay interest semiannually. The bonds are sold to…
A: Bond price at present can be found by using the PVIFA table for a given interest rate, number of…
Q: Lasting Impressions (LI) Company is a medium-sized commercial printer of promotional advertising…
A:
Q: Sapp Trucking's balance sheet shows a total of noncallable $30 million long-term debt with a coupon…
A: The book value WACC may be less and it may lead to incorrect investment decisions. That is why the…
Q: 1.Is the volatility index derived from the options of the constituent stocks of the S & P 500 index?…
A: Financial products known as derivatives derive their value from the price of an index or underlying…
Q: eBook A project has annual cash flows of $7,500 for the next 10 years and then $6,500 each year for…
A: NPV makes it possible to compare various investment opportunities. Given that it is anticipated to…
Q: (Calculating project cash flows and NPV) You are considering expanding your product line that…
A: NPV is a powerful tool in financial analysis, helping decision-makers assess the economic viability…
Q: Simone's Sweets is an all-equity firm that has 11,200 shares of stock outstanding at a market price…
A: Rate of Interest9% or 0.09Number of Outstanding Shares11,200 Market price$22 Debt to be…
Q: Your firm has decided to test the use of EVs as upscale taxis. You are choosing between an Audi and…
A: In order to decide which of the two cars is to be chosen, we need to calculate the Net Present Value…
Q: You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of…
A: year 1Year 2Year 3Year 4Year 5EBITDA$78$98$113$118Depreciation$38$48$53$58Pretax…
Q: A project is expected to generate annual revenues of $118,500, with variable costs of $75,100, and…
A: Annual revenue = $118,500Variable cost = $75,100Fixed cost = $15,600Depreciation = $3,900Tax rate =…
Q: The Bandon Pine Corporation's purchases from suppliers in a quarter are equal to 80 percent of the…
A: The transactions for which cash is paid out by the company are known as cash outlay. For example, it…
Q: Of these countries, which one has the highest historical equity risk premium for the period…
A: In this question, we are required to determine the country which had the highest equity risk premium…
Q: What is Stock Beta and Describe a Stock with little risk and Stock with high risk? Define Beta and…
A: Stock Beta: Beta is a measure of a stock's sensitivity to market movements. It quantifies the…
Step by step
Solved in 3 steps with 3 images
- Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Biofuel Equipment Year 1 2 3 4 Year 1 2 The wind turbines require an investment of $513,900, while the biofuel equipment requires an investment of $1,093,320. No residual value is expected from either project. Present Value of an Annuity of $1 at Compound Interest 12% 0.893 1.690 2.402 3.037 3.605 3 4 5 Wind Turbines 6 7 8 9 10 Required: $180,000 180,000 180,000 180,000 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 $360,000 360,000 360,000 360,000 5.759 6.145 4.111 4.564 4.968 5.328 5.650 15% 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 1a. Compute the net present value for each project. Use…Consider a project with the following cash flows: Year Cash Flow - 8000 1 3200 2 3200 3 3200 4 3200 Assume the appropriate discount rate for this project is 14%. The profitability index for this project is closest to: O A. 0.66 O B. 0.18 O C. 0.25 O D. 0.171- Information about the investment project is as follows. Discount rate (r) = 20% Year Net Cash Flows (TL) -10.000.000 1 - 6.000.000 - 2.000.000 3 30.000.000 4 40.000.000 a) A) Calculate the net present value of the investment. Please interpret with the reasons whether the investment project will be accepted or not according to your result. b) Calculate the internal rate of return of the project using the adjusted internal rate of return method. Interpret the result you found. Explain why the adjusted internal rate of return method was used for the solution. Show the equation you created. You can reach the result by using the excel function. c) Calculate the profitability index of the investment and interpret your result.
- 1- Information about the investment project is as follows. Discount rate (r) = 20% Year Net Cash Flows (TL) 0 -10.000.000 one - 6.000.000 2nd - 2,000,000 3 30.000.000 4 40.000.000 a) Calculate the net present value of the investment. Please interpret with the reasons whether the investment project will be accepted or not according to your result. b) Calculate the internal rate of return of the project using the adjusted internal rate of return method. Interpret the result you found. Explain why the adjusted internal rate of return method was used for the solution. Show the equation you created. You can reach the result by using the excel function. c) Calculate the profitability index of the investment and interpret your resultA project has the following cash flows: Year Cash Flow 0-22,500 1 12,310 22,760 3 4, 900 4 9, 870 Assuming the appropriate interest rate is 10%, what is the MIRR for this project using the discounting approach? MIRR = %Calculate the net present value of the following project for discount rates of 10,20 and 40 percent. Based on the NPVs you obtain, under which discount rates do you accept this project? Show your calculations. Cash Flows ($) Year 1 -7000 Year 2 4000 Year 3 19,000 NPV formula: NPV=sum_(t=0)^(n)(EATCF)/((1+k)^(t)) dution:-
- Project A has the following estimated cash flows and present values:Year Cash flow $ Discount factor@ 12% Present value $0 Cost (95 000) 1.0 (95 000) 1–5 Contributionper annum 50 000 3.605 180 250 1–5 Fixed costsper annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 Required:Calculate the sensitivity of the investment decision to a change in the annual contribution.Calculate the payback period, the discounted payback period and the NPV for the following project using a rate of 5%. Time Cash Flow 0 - $53,000 1 $ 21,000 2 $ 21,000 3 $ 21,000 NPV = Payback = Discounted Payback =Required: 1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar. Wind Turbines Biofuel Equipment Present value of annual net cash flows $ Less amount to be invested Net present value 1b. Compute a present value index for each project. If required, round your answers to two decimal places. Present Value Index Wind Turbines Biofuel Equipment 2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent. Wind Turbines Biofuel Equipment Present value factor for an annuity of $1 Internal rate of return % %
- A project has the following cash flows: Year Cash Flows 0 $ 128,200 12 1 2 3 4 49,400 63,800 51,600 28,100 The required return is 8.7 percent. What is the profitability index for this project? Multiple Choice 1.142 1.003 .803 1.038A project with the following cash flows received each year and with a required return of 8%.Initial Outlay = RM100Cash Flows: Year 1 = RM40Year 2 = RM50Year 3 = RM60 With the information given, compute: i. Discounted payback periodii. Net Present Value andiii. Profitability Index.At what discount rate does the following project have a positive NPV of exactly $1,000? Time 0 investment = -$10,000 Year 1-7 Cash Flows = +$2,500