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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Please I will like an answer step by step.
Thank you.
Given the following sensitivity analysis, which of the following statements is true?
| Estimated Annual Net Cash Flow | |||
| $500,000 | $600,000 | $700,000 | |
| $2,243,500 | $2,692,200 | $3,140,900 | |
| Present value of residual value | 50,000 | 50,000 | 50,000 |
| Total present value | $2,293,500 | $2,742,200 | $3,190,900 |
| Amount to be invested | (3,000,000) | (3,000,000) | (3,000,000) |
| (706,500) | (257,800) | 190,900 |
a.The investment is not justified if the annual net cash flow will be $500,000 or $600,000.
b.The annual net cash flow necessary to generate a positive net present value is above $700,000.
c.The total amount to be invested is $3,050,000.
d.Only an annual net cash flow of $700,000 will allow for a positive residual value.
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