Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Related questions
Concept explainers
Question
Transcribed Image Text:2. (30%) Antonio & Raquel (A&R) wedding planners are considering the purchase of a
luxurious limousine. It would last 15 years and have a salvage value of $22,000. This
purchase would generate a net inflow of $43,000/year. However, it has a hefty price tag of
$240,000.
Required: Determine the Internal Rate of Return (IRR) of the aforementioned investment
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- You are considering opening a new plant. The plant will cost $103.2 million upfront. After that, it is expected to produce profits of $30.9 million at the end of every year. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. If your cost of capital is 8.6%, the NPV of this investment opportunity is S Should you make the investment? (Select the best choice below.) O A. Yes, because the project will generate cash flows forever. O B. No, because the NPV is not greater than the initial costs. O C. Yes, because the NPV is positive. O D. No, because the NPV is less than zero. million. (Round to one decimal place.) The IRR of the investment is %. (Round to two decimal places.) The maximum deviation allowable in the cost of capital is %. (Round to two…arrow_forwardHaresharrow_forwardWhat is the value of the abandonment option (in millions), in the question below? Round your answer to two decimal places... Sunshine Smoothies Company (SSC) manufactures and distributes smoothies.It is considering the introduction of a "weight loss" smoothie.The project would require a $4 million investment outlay today (t = 0).The after-tax cash flows would depend on whether the weight loss smoothie is well received by consumers.There is a 30% chance that demand will be good, in which case the project will produce after-tax cash flows of $2 million at the end of each of the next 3 years.There is a 70% chance that demand will be poor, in which case the after-tax cash flows will be $1 million for 3 years.The project is riskier than the firm's other projects, so it has a WACC of 12%.The firm will know if the project is successful after receiving first year's cash flows.After receiving the first year's cash flows it will have the option to abandon the project.If the firm decides to…arrow_forward
- Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $90000 and will generate net cash inflows of $21000 per year for 11 years. What is the internal rate of return? Should it be accepted? Why or why not?arrow_forwardWinston Clinic is evaluating a project that costs $52, 125 and has expected net cash inflows of $12,000 per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 12 percent. What is the project's payback? What is the project's NPV? Its IRR? Its MIRR? Is the project financially acceptable? Explain your answer.arrow_forwardWhat is the net present value of the flier project, which is a 3-year project where Dispersion would spread fliers all over Fairfax? The project would involve an initial investment in equipment of $232,000.00 today. To finance the project, Dispersion would borrow $232,000.00. The firm would receive $232,000.00 from the bank today and would pay the bank $294,695.40 in 3 years (consisting of an interest payment of $62,695.40 and a principal payment of $232,000.00). Cash flows from capital spending would be $0.00 in year 1, $0.00 in year 2, and $30,500.00 in year 3. Operating cash flows are expected to be $144,900.00 in year 1, $99,400.00 in year 2, and -$28,200.00 in year 3. The cash flow effects from the change in net working capital are expected to be -$8,310.00 at time 0; -$21,700.00 in year 1; $12,100.00 in year 2, and $16,900.00 in year 3. The tax rate is 35.00 percent. The cost of capital is 7.45 percent and the interest rate on the loan would be 8.03 percent. -$13,600.79 (plus or…arrow_forward
- Payback, NPV, and IRR Rieger International is evaluating the feasibility of investing $87,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table: E. The firm has a 9% cost of сapital. a. Calculate the payback period for the proposed investment. b. Calculate the net present value (NPV) for the proposed investment. c. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment. d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? ..... a. The payback period of the proposed investment is years. (Round to two decimal places.) b. The NPV of the proposed investment is $ (Round to the nearest cent.) c. The IRR of the proposed investment is %. (Round to two decimal places.) d. Should Rieger International accept or reject the proposed investment?…arrow_forward← (Net present value calculation) Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine This investment requires an initial outlay of $105,000 and will generate net cash inflows of $17,000 per year for 9 years a. What is the project's NPV using a discount rate of 11 percent? Should the project be accepted? Why or why not? b. What is the project's NPV using a discount rate of 16 percent? Should the project be accepted? Why or why not? c. What is this project's internal rate of return? Should the project be accepted? Why or why not?arrow_forwardSuppose you plan on spending $100/ac on restoring a forest on bare land you plan to buy. The project is projected to yield a harvest worth $2500/ac in 30 years. After which you sell the land for $400/ac. If you want to earn at least 6% rate of return, what is your willingness to pay for the land? Assume no other costs and revenues and that all values are in real terms. Show your work solving the problems a.) $490.28 b.) $265.63 C.) $636.27 d.) $404.92 e.) none of the abovearrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author: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 ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
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