Donna Clark wants to open a restaurant in a historic building. The property can be leased for 20 years but not purchased. She believes her restaurant can generate a net cash flow of $75,000 the first year and expects an annual growth rate of 4 percent thereafter. If a discount rate of 17 percent is used to evaluate this business, what is the present value of the cash flows that it will generate? (Round factor values to 5 decimal places, e.g. 1.52145 and final answer to 2 decimal places, e.g. 52.75.) Present value $
Q: You expect to receive $12,000 at graduation in two years. You plan on investing it at 10 percent…
A: Compound interest is a financial concept where your initial investment (or principal) earns…
Q: Sentra Limited has identified a new machine that it is considering for purchase during 2024. The…
A: The NPV is a capital budgeting technique used to evaluate the profitability of an investment using…
Q: Give typed full explanation Suppose the current price of a stock is $100. The stock pays $5…
A: F = (S - D1-D2) * ertwhereF = Fair forward price on stock S = current price of a stock D1=Present…
Q: You are a fund accountant working in the back office of an investment bank. Obtain the "clean" price…
A: The clean price of the bond refers to the bond price which does not include any accrued interest if…
Q: International Fischer Forecasts. Assuming International Fisher applies to the coming year, forecast…
A: The International Fisher Effect (IFE) is an economic theory that suggests a relationship between…
Q: NoRagrets, Inc is expected to pay a dividend in year 1 of $2 and a dividend in year 2 of $2.40.…
A: Given information,Dividend in year 1: Dividend in year 2: Rate of return: Growth rate: To…
Q: High Sky Inc. a hot-air balloon manufacturing firm, currently has the following simplified balance…
A: Indifference point is the level of EBIT at which EPS under debt financing is equal to EPS under…
Q: The first $2,000 deposit is made on December 31, 2020, interest is compounded annually, and interest…
A: Interest is the amount of profit earned on the deposit amount and is the rate of return earned.Given…
Q: Suppose currently 10-year Treasury bond yields 0.9% and 10-year municipal bond offers 0.8% yield.…
A: Spread or risk premium is rate of return above the risk free rate and taxable rate of return of…
Q: Insurance contracts are aleatory contracts, which is a "take it or leave it" contract. The insured…
A: Aleatory contract- Insurance contracts are aleatory contracts, meaning that the policy does not…
Q: You have found three investment choices for a one-year deposit: 11.7% APR compounded monthly, 11.7%…
A: Option 1APR = 11.7%Monthly CompoundingNumber of compounding periods = 12Option 2APR = 11.7%Annual…
Q: Jilk Incorporated's contribution margin ratio is 61% and its fixed monthly expenses are $48,500.…
A: Contribution margin is selling price per unit less variable cost per unit for a product.Contribution…
Q: Suppose you invest $2,500 in a fund earning 15% simple interest. Further suppose that you have the…
A: We can solve the question using Excel's Solver. Our objective is to maximize the following by…
Q: Nancy Regan purchased a new diamond bracelet for $12,600. The state sales tax is 6% and the federal…
A: The selling price for Bracelet is $12,600State sales tax is 6%Federal excise tax is 11%To Find:Total…
Q: You are evaluating a growing perpetuity investment from a large financial services firm. The…
A: The PV of an investment refers to the combined value of the cash flows of the investment assuming…
Q: Rebate Versus Low Interest Rate Kyle Parker of Concord, New Hampshire, has been shopping for…
A: PR or Annual Percentage Rate is defined as the annual interest, which is generated through sums that…
Q: False statements made by an applicant when applying for insurance are: Breaches of warranty. Lack of…
A: Introduction:Insurance - It is a contract, represented by a policy, between insurer and the insured…
Q: If you take the "get a job" route you expect to start off with a salary of $40,000 per year. There…
A: The PV of an investment refers to the combined value of the cash flows of the investment assuming…
Q: Terry Austin is 30 years old and is saving for her retirement. She is planning on making 27…
A: Future value is an estimate of future cash flows that may be received at a future date, discounted…
Q: 14. APV Consider a project lasting one year only. The initial outlay is $1,000, and the expected…
A: The worth of a company or a project is assessed using the financial valuation approach known as…
Q: 3000 2000 1000 3
A: NPV can be found as the difference between the present value of positive cash flow and the present…
Q: The Howe family recently bought a house. The house has a 30-year, $162,902.00 mortgage with monthly…
A: Mortgages are a typical method used by both people and businesses to finance the acquisition of a…
Q: You are considering investing in a security that will pay you $2,000 in 30 years. a. If the…
A: Future Value = fv = $2000Time = t = 30 years
Q: Select all that are true with respect to the IRR rule for making capital investment decisions. Group…
A: IRR is the discount rate that makes the NPV of a project equal to zero. In other words, it's the…
Q: Suppose you have some money to invest-for simplicity, $1-and you are planning to put a fraction w…
A: The expected return of the portfolio refers to the mean of the returns that the portfolio provides…
Q: Use Macauly's Duration Price Approximation formula for this. Before a change in interest rates, your…
A: Duration of a bond shows the sensitivity of bond prices to the interest rate in the market and shows…
Q: One approach for using multifactor models is to use factors that capture systematic risk. Which of…
A: In the multiple factor model many various types of factors that will have an impact on the asset…
Q: 3. Susie bought a $1000 corporate bond. The bond pays 6.4% interest per year. If Susie holds the…
A: Bonds are debt instruments issued by companies. A company can raise its finances or funding either…
Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…
A: Standard deviation of stock = wherei is stock is beta of stock i is standard deviation of market
Q: An investor has $2,215 invested in stock A and $3,826 in stock B. The daily volatilities of A and B…
A: Value at Risk refers to the maximum amount that investment in the portfolio will lose with the given…
Q: 11. Consider a 2 year Treasury note. The bond pays coupons annually, with coupon rate 10% (the par…
A: The market interest rate of a bond also known as the yield to maturity of the bond is an expected…
Q: The marketing director, Mr. Thomas, has been investigating the market for disposable coffee cups…
A: Calculation used to evaluate the investment and financing decisions that involve cash flows…
Q: The following three defense stocks are to be combined into a stock index in January 2022 (perhaps a…
A: Price-Weighted Index:In the price-weighted index, each security is weighted by the relevant price…
Q: You need $12,000 in year 10. Four years ago, you saved $3,000 for nine years in the Eastern bank…
A: ParticularsValuesAmount needed in 10th year $12,000.00Amount deposited 4 years ago $…
Q: seball player is offered a 5-year contract that pays him the following amounts: Year 1: $1.38…
A: Present value is the equivalent value of the future cash flow that is going to be received based on…
Q: US Treasury notes currently pay an effective annual rate (yield) of 4%. Your financial advisor…
A: Price of any asset is the present value of cash flow from the asset based on the interest rate in…
Q: Stanley Jaffe and Sherry Lansing have just purchased the rights to Corporate Finance: The Motion…
A: We will use the capital budgeting tools of NPV and IRR here.NPV is the sum of present values of all…
Q: In 2006 and 2007, Kenneth Cole Productions (KCP) paid annual dividends of $0.76. In 2008, KCP paid…
A: a.Risk free equity cost of capital, r = 5.5%Dividend in 2006 & 2007 = $0.76Dividend for 2008 =…
Q: What is the cash cow value and the value of its growth opportunities (NPVGO) if a corporation has…
A: Cash Cow Value (CCV): This represents the value of the firm's existing operations if it never takes…
Q: Greta has risk aversion of A = 3 and a 1-year investment horizon. She is pondering two portfolios,…
A: To calculate Greta's capital allocation, use the Capital Market Line (CML) formula, which depends on…
Q: Calculate the yield on the following bonds: A. Cost $1,000, semiannual coupon payment 3%. Since…
A: A bond is a kind of debt security issued by the government and private companies to the public for…
Q: ive years ago, you saved $5,000 in bank A that pays a compounding interest rate. You also saved…
A: Simple Interest rateA = P * (1 + rt)A=final amountp=Present valuer=Interest rateT=time (in…
Q: A machine costs $20,000 and has a 5-year useful life. At the end of the 5 years, it can be sold for…
A: Equivalent annual worth is the annual cost of owning ,operating and maintaining and asset over its…
Q: What are the key differences between future and forward contracts? a) direct contract for forwards…
A: Future and forward contracts are both financial instruments used for hedging and speculative…
Q: a. What is the value of an investment that pays $15,000 every other year forever, if the first…
A: The PV of an investment refers to the combined worth of the cash flows of the investment which are…
Q: Annual rate of return refers to the percentage at which an investment will generate profits or gains…
A: The annual rate of return is the percentage increase in the value of an investment over a specified…
Q: Your firm spends $498,000 per year in regular maintenance of its equipment. Due to the economic…
A: IRR refers to the internal rate of return at which the net present value is zero. It is the…
Q: Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity: 13…
A: Price of a bond is the present value of coupon payments plus the present value of the par value of…
Q: A bond has a quoted price of K1,080.42. It has a face value of K1,000, a semi-annual coupon of K30,…
A: Given information,Price: Face value: Compounding frequency: Semi annualCoupon: Time to maturity:…
Q: The Petit Chef Co. has 10.6 percent coupon bonds on the market with ten years left to maturity. The…
A: Yield to maturity can be calculated by following function in excel=RATE (nper, pmt, pv, [fv],…
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?4. You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it for 15 years and then sell it at a profit. During this period, you would have to pay annual property taxes of $600 and have no income from the property. Assuming that you would want a 10% rate of return from the investment, a) Draw a cashflow diagram. b) What net price would you have to sell it in the next 15 years?You see an opportunity to invest $1 million in a business. The investment is expected to generate a cash flow of $250000 per year over the next five years. Assuming a discount rate is 5%, would it be a sound decision to invest in this business?
- Let's try a more complex Net Present Value (NPV) question. Say, today (Year 0), a small business invests $1,000 to build a small factory. In one year (Year 1), the Cash Flow from this factory is $2,000. Say, the Cash Flow grows 5% (Growth Rate) in the second year (Year 2) to $2,100. The discount rate is 10%. What is the Net Present Value? Group of answer choices $1,735.54 $2,553.72 $3,553.72Your company is planning to purchase a new log splitter for its lawn and garden business. The new splitter has an initial investment of $204,000. It is expected to generate $30,000 of annual cash flows, provide incremental cash revenues of $125,080, and incur incremental cash expenses of $70,000 annually. What is the payback period and accounting rate of return (ARR)? Round your answers to 1 decimal place. Payback period fill in the blank 1 years ARR fill in the blank 2%Your company is planning to purchase a new log splitter for its lawn and garden business. The new splitter has an initial Investment of $225,000. It is expected to generate $30,000 of annual cash flows, provide incremental cash revenues of $174,350, and Incur Incremental cash expenses of $110,000 annually. What is the payback period and accounting rate of return (ARR)? Round your answers to 1 decimal place. Payback period ARR years
- Your company is planning to purchase a new log splitter for its lawn and garden business. The new splitter has an initial investment of $268,000. It is expected to generate $40,000 of annual cash flows, provide incremental cash revenues of $194,772, and incur incremental cash expenses of $120,000 annually. What is the payback period and accounting rate of return (ARR)? Round your answers to 1 decimal place. Payback period years. ARR %The net present value method is used to evaluate capital investments. Imagine you are considering purchasing a new delivery truck for your business. The truck should be useable for 5 years and the company's discount rate is 10%. Consider the factors below: Initial purchase price: $80,000 You can sell the truck for $5,000 at the end of 5 years The new truck will provide $25,000 in cash flows each year How would you account for each of the three factors in your net present value calculation? Why does it makes sense to account for each the way you described? Note, I am not asking for the calculation although you can provide this if it helps aid your explanation. Please number your responses (1-3) when discussing the how and why. No generic answers please.A) If a company will pay $75,000 for a truck that will increase deliveries to be made which will give an additional $10,000 in revenue each year for 10 years, should the company buy it? Interest rates are 4%. Show your math. B) Now revenue is estimated to be only $8,000 a year for 10 Interest rates have risen to 5%, should the truck be purchased? Show your math.
- Suppose you own a business and you expect to generate a profit of $50,000 next year. Each year after that you expect your profit to grow by 4%. If you earn profits for 10 years total and the discount rate is 8%, what is your company’s valuation today (present value)? (Show layout in Excel Please)In the provided scenario, you address the time value of money also known as discounted cash flow analysis. This type of analysis is crucial to being able to viably analyze financial statements. The start - up firm you founded is trying to save $10, 000 in order to buy a parcel of land for a proposed small warehouse expansion. In order to do so, your finance manager is authorized to make deposits of S 1250 per year into the company account that is paying 12% annual interest. The last deposit will be less than $1250 if less is needed to reach $10,000. How many years will it take to reach the $10,000 goal and how large will the last deposit be? Show your workAn investment company is considering one of two possible business ventures. Project 1 gives a return of $250 000 in four years’ time, whereas Project2 gives a return of $350 000 in eight years’ time. Which project should thecompany invest in when the interest rate is 7% compounded annually?