A firm urgently needs a large printer and will either lease a printer at an end-of-year cost of $ 5000 for a 6 year period, or they will purchase the printer at an initial cost of $50,000. If purchased, the printer wilI have a zero salvage value at the end of 6- years life. No other costs are to be considered. MARR is 4%. What is the best investment decision on the basis of the internal rate of return. a. IRR could not be calculated due to no change in cashflow sign b. Negative IRR is not justified and is not applied here to make a proper decision C. Lease d. Buy

A firm urgently needs a large printer and will either lease a printer at an end-of-year cost of $ 5000 for a 6 year period, or they will purchase the printer at an initial cost of $50,000. If purchased, the printer wilI have a zero salvage value at the end of 6- years life. No other costs are to be considered. MARR is 4%. What is the best investment decision on the basis of the internal rate of return. a. IRR could not be calculated due to no change in cashflow sign b. Negative IRR is not justified and is not applied here to make a proper decision C. Lease d. Buy

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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Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice O 0.95. 1.01. 1.05. 1.11.
A firm has only $10,000 to invest and must choose between two projects. Project A returns $12,400 after a year while project B pays $15,609 after three years. If management wants to select the investment with the higher return, which alternative should be chosen? Calculate the return for each investment and indicate which option provides the higher return and explain why.
ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NP of the assembler if the required rate of return is 12%. Show calculation. Would you accept/reject a project based on NPV decision criteria? Why? Based on NPV calculated in part A, determine Profitability Index (PI). Show calculation. Would you accept/reject a project based on PI decision criteria? Why?
Pablo Company is considering buying a machine that will yield income of $3,100 and net cash flow of $17,600 per year for three years. The machine costs $50,100 and has an estimated $6,600 salvage value. Pablo requires a 10% return on its investments. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.) Years 1-3 Totals Net present value Net Cash Flows PV Factor = = Present Value of Net Cash Flows
A company is considering buying a piece of machinery that costs $20,000 and has a salvage value of $6,000 at the end of its 5-year useful life. The machinery nets $5,000 per year in annual revenues. The internal rate of return (IRR) on this investment is between__________. if the company considering purchasing the machine uses a MARR of 12%, would you recommend that it be bought?
The management of East Manufacturing needs a new high tech sorting machine and has two different proposals under consideration. They require a rate of return of 10% (discount rate) and the Accounting Department has prepared the following information: Initial Investment Useful Life of Equipment Net Annual Cash Flow Salvage Value Investment B: Click to open:↓ Ⓡ Clearly label and show calculations for full credit! No calculations = No credit. 1) Calculate the Payback Period for each option: Investment A: 2) Calculate the Net Present Value of each option: Investment A: $ 3,700,000 7 years $ 900,000 $0 Investment B: A $3,400,000 7 years $800,000 $90,000 B
Pablo Company is considering buying a machine that will yield income of $2,700 and net cash flow of $18,400 per year for three years. The machine costs $58,500 and has an estimated $11,400 salvage value. Pablo requires a 5% return on its investments. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.) Years 1-3 Totals Net present value Present Value of Net Cash Flows X PV Factor Net Cash Flows $ 0 = 0 = = =
Pablo Company is considering buying a machine that will yield Income of $3,400 and net cash flow of $16,500 per year for three years. The machine costs $45,600 and has an estimated $6,300 salvage value. Pablo requires a 15% return on Its Investments. Compute the net present value of this Investment. (PV of $1, FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.) Years 1-3 Year 3 salvage Totals Initial investment Net present value Net Cash Flows x PV Factor = = = = Present Value of Net Cash Flows $ 0 0
Pablo Company is considering buying a machine that will yield income of $3,300 and net cash flow of $16,000 per year for three years. The machine costs $45,000 and has an estimated $6,900 salvage value. Pablo requires a 10% return on its investments. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your present value factor to 4 decimals.) Net Cash Flows X PV Factor Present Value of Net Cash Flows Years 1-3 Totals Net present value = = = = =
Mayberry, Inc., is considering a design change that will cost $6,000 and will result in an annual savings of $1,000 per year for the 6-year life of the project. A cost of $2,000 will be avoided at the end of the project as a result of the change. MARR is 8%/year. a. What is the annual worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on annual worth? c. Should Mayberry implement the design change?
You are faced with a decision on an investment proposal. Specifically, the estimated additional income from the investment is $125,000 per year; the investment cost is $400,000; and the first year estimated expense of $20,000 and will increase a rate of 5% per year. Assume an 8-year analysis period, no salvage value, and MARR = 15% per year. a. Calculate the PW and FW of this proposal? b. What is the ERR ( E=MARR) of this proposal? c. What is the Simple and Discounted payback? (Upload the picture of your complete solutions including the correct cash flow diagram and your conclusion.)
a. What should be your material cost for a project with MARR of 25% to make it into marginally acceptable and with an annual revenue of Php 10,000.00 for 8 years? Explain why, draw its cash flow diagram, and show your complete solutions. b. Now, if the said project has a salvage cost of Php 7,300.00 after 6 years, does it make a good investment opportunity? Explain why, draw its cash flow diagram, and show your complete solutions. c. Lastly, If the said project has an annual cost of Php 2,000.00, what is your capital investment? Explain why, draw its cash flow diagram, and show your complete solutions.

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