**10.1 Net present value:** Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $325,000 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project?**10.2 Net present value:** Kingston, Inc. management is considering purchasing a new machine at a cost of $4,133,250. They expect this equipment to produce cash flows of $814,322, $863,275, $937,250, $1,017,112, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?**10.3 Net present value:** Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for projects like this, should management go ahead with the project?| Year | Cash Flow ||------|------------|| 0 | -$3,300,000|| 1 | 875,123 || 2 | 966,222 || 3 | 1,145,000 || 4 | 1,250,399 || 5 | 1,504,445 |**10.4 Net present value:** Management of Franklin Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312,500. They project that the cash flows from this investment will be $121,450 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project?

Net present value is the sum of the present value of all the future cash flow minus the initial…

10.1 Net present value: Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $325,000 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project?

10.1 Net present value: Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $325,000 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project?

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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Can I get the answers to 10.11 and 10.12.
Your company is currently considering two investment projects. Each project requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and the investments will produce the following after tax cash flows: Year Project A Project B 1 $5,000,000 $20,000,000 2 $10,000,000 $10,000,000 3 $15,000,000 $8,000,000 4 $20,000,000 $6,000,000 a) Calculate the payback period for both projects, then compare to identify which project the firm should undertake. [Note: you are supposed to show every step of your calculation and interpret the result.] b) Evaluate the advantages and disadvantages of using the payback method in investment decisions and assess the situations where it should be used. [Note: remember to use Harvard referencing to reference your sources]
A project’s initial cost is 13 million. The company expects a net cashflow of 10 million in year one, but the net cashflow is expected to decrease 1 million each year for the next years. If the company’s MARR is 12%, using NPW/NFW analysis is the project profitable in the first 5 years?
1. What is the profitability index of a project that costs $90,000 and returns $30,000 annually for 8 years if the opportunity cost of capital is 9.6%? a.0.64 b.0.80 c.1.76 d.1.05 e.1.26 2. King Corporation is planning a 15-year project with an initial investment of $2,013,000. The project will have $563,000 cash inflows per year in years 1-2; $166,000 cash inflows in years 3-10, and $57,000 cash inflows in years 11-15. Determine the project's internal rate of return (IRR). Using financial calculator a.6.87% b.5.72% c.4.58% d.10.30% e.8.24%
(Net present value calculation) Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $6,000,000 and would generate annual net cash inflows of $1,100,000 per year for 9 years. Calculate the project's NPV using a discount rate of 5 percent. If the discount rate is 5 percent, then the project's NPV is $___________________(Round to the nearest dollar.)
4. Your firm is evaluating a project that should generate revenue of P4,600 in year 1, P5,200 in year two, P5,900 in year three, and P5,700 in year four. The firm receives each cash flow at the end of each year. If your firm's required return is 12%, what is the future value of these cash flows at the end of year four? a.P16,074.51b.P22,583.53c.P25,293.55d.P28,328.77
None
NPV (net present value) Craig is considering several capital investments for the upcoming year. Use the NPV (net present value) method to determine whether the company should investment in the following independent projects: Project 1 costs $28,000 and offers 8 annual cash flows of $8,600. Craig feels this type of investment should require an annual return of 16% on projects like this. Project 2 costs $35,000 and offers 6 annual cash flows of $12,000. Craig feels this type of investment should require an annual return of 12% on projects like this. Requirements 1. Calculate the NPV of both of these projects 2. What is the maximum acceptable price Craig should pay for each of these projects?
A project that costs $1000 today is expected to have cash flows of $200/year for 10 years. Under these projections, this is a positive NPV project: if your cost of capital is 10%/year, investing $1000 today and earning $200 per year for 10 years yields an NPV of $228.91 (you can verify this yourself, or take my word for it). However, those annual cash flows of $200 are based on the following expectations: A 50% probability that business will be good and the project will earn $300/year, and a 50% probability that business will be bad and the project will earn $100/year. (Note that the expected annual cash flows will be: [0.5 * $300] + [0.5 * $100] = $200/year, as stated above.) Unfortunately, you will not know which state of the world you will be in until you spend the $1000 and start the business; in year 1, after the business opens, you will find out. Obviously, if you open for business and business is good, you will want to stay open for the entire 10 years; if your cost of capital…
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Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.97 million. The product is expected to generate profits of $1.08 million per year for ten years. The company will have to provide product support expected to cost $99,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 6.2%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.2%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment?
We are considering a capital investment project for Company Xaxuru Bhd. The project requires an initial investment of $200,000 and is expected to generate cash flows over the next five years of RM50,000, RM60,000, RM70,000, RM80,000, RM90,000. If the company uses a discount rate of 10%. Calculate the NPV of this project.

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