ff2 Grant Investment Ltd have developed an interesting option. The challenge isto buy a rather worn out real estate for £700 000 and let it to start ups.During the first five years the estimated rent is £200 000. During the fifthyear the offices in the building are planned to be refurbished at an estimatedcost of £300 000. For the first five years of the project the direct cost forcleaning and maintenance is set at £70 000 per year. The contract with thetenants stipulates an increase of rent as from year 6 to year 10 to be £400000 annually. At the same time the estimated cost for cleaning andmaintenance is expected to increase by £50 000 annually. All revenues andcost above are expected to be paid in the end of each year. GrantInvestment Ltd have an risk free return available at 5% and given the marketconditions they like to see a risk premium for this investment at 10%. Wouldthis be a challenge worth to pursue? Support your answer with propercalculations.

Net present value is the difference between the present value of inflow and outflow from the project…

Answered: Grant Investment Ltd have developed an…

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

See similar textbooks

Similar questions

Hunt Ltd is considering replacing all its offset printing machinery. The cost on 1.1.X1 will be £2m. The expected economic life of the equipment will be 4 years. The company depreciates its equipment using the straight-line methods. The company expects to sell this equipment for £200,000, after the end of its useful economic life. There are expected cost savings arising from this investment of £900,000 in each of years 1 and 2 and £600,000 in each of years 3 and 4. Which is the payback period of this investment?
Grant Investment Ltd have developed an interesting option. The challenge is to buy a rather worn out real estate for £700 000 and let it to start ups. During the first five years the estimated rent is £200 000. During the fifth year the offices in the building are planned to be refurbished at an estimated cost of £300 000. For the first five years of the project the direct cost for cleaning and maintenance is set at £70 000 per year. The contract with the tenants stipulates an increase of rent as from year 6 to year 10 to be £400 000 annually. At the same time the estimated cost for cleaning and maintenance is expected to increase by £50 000 annually. All revenues and cost above are expected to be paid in the end of each year. Grant Investment Ltd have an risk free return available at 5% and given the market conditions they like to see a risk premium for this investment at 10%. Would this be a challenge worth to pursue? Support your answer with proper calculations.
Your company wants to bid on the sale of 10 customized machines per year for five years. The initial costs for the project are €1.6 million with a salvage value of €800,000 after five years. The machine will be depreciated straight- line to zero over the five years. Annual fixed costs are estimated at €700,000. Variable cost per machine is €81,500. The project requires net working capital of €120,000. The company has a 34% tax rate and desires a 15% return on the project. What is the minimum price that the company should bid per single machine? €198,196 €212,028 €219,887 €221,009 None of the above.
Clyn Contractors is preparing to replace critical earthmoving plant and equipment so that they can consolidate future bids. The anticipated cost of the digger with a maximum-sized bucket is £85,000. It needs to be bought in 4 years’ time. However, the industrial development fund is willing to loan Clyn contractors at a rate of 12% per annum if they can purchase the digger today. The accountant thinks there is a possibility of outright purchase of the digger in 4 years’ time if the company can create a sinking fund at a rate of 6% per annum. 1- Calculate the cost of finance to purchase the digger for £85,000 using the loan from industrial development fund 2- Explain how the financial health of Clyn contractors is able to influence the decision of outright purchase using a loan today or the creation of a sinking fund for the next 4 3-Calculate the amount of money Clyn Contractors should reserve (sinking fund) per year for it to make an outright purchase, as proposed by the accountant
XXXX Contractors are preparing to replace critical earthmoving plants and equipment so that they can consolidate future bids. The anticipated cost of the digger with a maximum-sized bucket is £85,000. It needs to be bought in 4 years’ time. However, the industrial development fund is willing to loan XXXX contractors at a rate of 12% per annum if they can purchase the digger today. The accountant thinks there is a possibility of outright purchase of the digger in 4 years’ time if the company can create a sinking fund at a rate of 6% per annum Task: Explain how the financial health of XXXX contractors is able to influence the decision of outright purchase using a loan today or the creation of a sinking fund for the next 4 years
Limitless Ltd. is planning to buy a new warehouse to store its production output. Theinvestment would require £500,000 to be paid upfront. Thanks to the new warehouse,the company expects to increase its profits by £120,000 annually for the next five years,and then £60,000 for the following five years. 1. Calculate the Net Present Value (NPV) of this investment opportunity if the cost ofcapital is 12%. 2. What is the payback period of this investment?
You are provided with the following details of a proposed investment in a new machine: The factory will cost £500,000 to acquire and install and will have a useful life of 20 years. At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000. Depreciation is to be charged on a straight-line basis. If the machine is acquired, its production activity is forecast to generate revenue of £830,000 per year. The other annual costs, apart from depreciation, resulting from use of the machine are forecast to be You are provided with the following details of a proposed investment in a new machine: The factory will cost £500,000 to acquire and install and will have a useful life of 20 years. At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000. Depreciation is to be charged on a straight-line basis. If the machine is acquired, its production activity is forecast…
Pascal Ltd intends to tender for a contract to make warning triangles to be carried in cars in the event of a breakdown. The contract will last for one year and will require the use of a machine that is already held. The machine cost £120,000 and has a carrying value of £70,000. The annual depreciation charge is £25,000 per year. It is estimated that the current market value is £50,000 and that it could be sold in one year's time for £20,000. What is the relevant cost of using the machine for the purposes of the tender?
You are provided with the following details of a proposed investment in a new machine: The factory will cost £500,000 to acquire and install and will have a useful life of 20 years. At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000. Depreciation is to be charged on a straight-line basis. If the machine is acquired, its production activity is forecast to generate revenue of £830,000 per year. The other annual costs, apart from depreciation, resulting from use of the machine are forecast to be You are provided with the following details of a proposed investment in a new machine: The factory will cost £500,000 to acquire and install and will have a useful life of 20 years. At the end of the useful life of the machine, it is forecast that it can be sold for spare parts and scrap metal for £20,000. Depreciation is to be charged on a straight-line basis. If the machine is acquired, its production activity is forecast…
Milan Ltd. wants to purchase a new machine for its factory operations at a cost of £380,000. This cost would be paid off in four installments: an immediate payment of £170,000, and a payment of £70,000 at the end of each of the next three years. The investment is expected to generate £80,000 in annual cash flows for a period of six years. The annual operating costs associated with the new machine are estimated to be £118,000 per year, including depreciation. These cash flows and costs will generally occur throughout the year and are recognized at the end of each year. Additional information:1. The old machine can be sold for £25,000.2. The new machine is expected to have the terminal disposal value £32,000 at the end of a six-year period.3. Depreciation of the new machine is calculated using the straight-line method.4. Major maintenance cost at the end of Year 3 will be £55,000 and at the end of Year 5 will be £30,000.5. An additional cash investment in working capital of £20,000 will…
Milan Ltd. wants to purchase a new machine for its factory operations at a cost of £380,000. This cost would be paid off in four installments: an immediate payment of £170,000, and a payment of £70,000 at the end of each of the next three years. The investment is expected to generate £80,000 in annual cash flows for a period of six years. The annual operating costs associated with the new machine are estimated to be £118,000 per year, including depreciation. These cash flows and costs will generally occur throughout the year and are recognized at the end of each year. Additional information:1. The old machine can be sold for £25,000.2. The new machine is expected to have the terminal disposal value £32,000 at the end of a six-year period.3. Depreciation of the new machine is calculated using the straight-line method.4. Major maintenance cost at the end of Year 3 will be £55,000 and at the end of Year 5 will be £30,000.5. An additional cash investment in working capital of £20,000 will…
A company is trying to decide whether to buy a machine for $ 80,000 which will saved $20000 a year for five years and which have a resale value of $10000 at the end of the years. What would be IRR of the investment project

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS