Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Compute the NPV statistic for Project U if the appropriate cost of capital is 11 percent. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. Project U Time: 0 1 2 3 4 5 Cash flow: -$ 2,500 $ 750 $ 2,480 -$ 720 $ 700 -$300 NPV Should the project be accepted or rejected? (Click to select) es ✓arrow_forwardWhich of the following describes the NPV decision rule? Accept if the cost of the project is recouped within 3 years. Accept if the PV of the cash inflows of the project divided by the absolute value of the cost of the project is greater than one. Accept if the PV of the cash inflows from the project minus the cost of the project is greater than zero Accept if the average net income from the project divided by the average book value is greater than the target required Accept if the rate of return earned on the project is greater than the required return for the project.arrow_forwardA project that provides annual cash flows of $16,900 for eight years costs $75,000 today. What is the NPV for the project if the required return is 7 percent? What is the NPV for the project if the required return is 19 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forward
- A project that provides annual cash flows of $16,900 for eight years costs $75,000 today. What is the NPV for the project if the required return is 7 percent? What is the NPV for the project if the required return is 19 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forwardAn investment under consideration has a payback of seven years and a cost of $884,000. Assume the cash flows are conventional. If the required return is 11 percent, what is the worst-case NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)arrow_forwardA project has an initial cost of $65,000, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 8%. What is the project's NPV? (Hint:Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forward
- The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) 0 -$ 76,000 -$ 34,000 1 29,000 11,000 23,500 17,500 2 3 36,000 42,000 a-1. If the required return is 12 percent, what is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. a-2. If the company applies the profitability index decision rule, which project should it take? b-1. If the required return is 12 percent, what is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b-2. If the company applies the net present value decision rule, which project should it take? a-1. Project I a-2. Project II b-1. Project I b-2. Project IIarrow_forwardAn investment has an installed cost of $565,382. The cash flows over the four-year life of the investment are projected to be $194,584, $238,318, $186,674, and $154,313. If the discount rate is zero, what is the NPV? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. If the discount rate is infinite, what is the NPV? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. At what discount rate is the NPV just equal to zero? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.arrow_forwardA project has an initial investment of $104. You have come up with the following estimates of the project's cash flows (there are no taxes): Revenues Costs Pessimistic Most Likely $17 12 Multiple Choice Suppose the cash flows are perpetuities and the cost of capital is 10 percent. Conduct a sensitivity analysis of the project's NPV to variations in revenues. (Answers appear in order: [Pessimistic, Most Likely, Optimistic].) -$104,-$34, $76 -$34, $36, $66 -$54, $66, $66 $24 10arrow_forward
- A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow 0 $27,700 1 11,700 14,700 3 10,700 If the required return is 18 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % Should the firm accept the project? Yes Noarrow_forwardA project that costs $2,300 to install will provide annual cash flows of $730 for each of the next 5 years. a. Calculate the NPV if the opportunity cost of capital is 12%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV b. Is this project worth pursuing? Yes O No c. What is the project's internal rate of return IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.) %24arrow_forwardCompute the NPV for Project M if the appropriate cost of capital is 8 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.) Project M Time: 0 1 2 3 4 5 Cash flow: −$3,100 $710 $840 $880 $960 $460 Should the project be accepted or rejected?multiple choice rejected acceptedarrow_forward
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