A property costs $5 million. It will generate positive cash flows for years 1-15. Cash flow in year 1 is $200,000. Cash flows grow by 20% per year. The property is sold for $5,500,000 at the end of year 15. Your firm will only make real estate investments that offer an internal rate of return greater than 15%. In this case your firm should make the investment.
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4. A property costs $5 million. It will generate positive cash flows for years 1-15. Cash flow in year 1 is $200,000. Cash flows grow by 20% per year. The property is sold for $5,500,000 at the end of year 15. Your firm will only make real estate investments that offer an
In this case your firm should make the investment.
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- Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?You want to set up a new private business. The new business will generate a net cash inflow of $106,000 for the firm during the first year, and the cash flows are projected to grow at the rate of 4% per year forever. The project require the initial investment of $1,590,000. a) What is the NPV if the required return is 10%? b) At 10% return, should the company accept or reject the project? c) The company is unsure about the assumption of a growth rate of 4% in its cash flows. At what constent growth rate will the company break even, if it stll require a return of 10% on its investment. *Constent Growth Rate?You are considering opening a new plant. The plant will cost $95.1 million upfront and will take one year to build. After that, it is expected to produce profits of $29.2 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.4 %. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule?
- You are considering opening a new plant. The plant will cost $100.7 million upfront and will take one year to build. After that, it is expected to produce profits of $28.6 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 6.3%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule? Here is the cash flow timeline for this problem: Years 0 2 + 28.6 3 28.6 4 + 28.6 Cash Flow ($ million) - 100.7 Calculate the NPV of this investment opportunity if your cost of capital is 6.3%. The NPV of this investment opportunity is $ million. (Round to two decimal places.) Forever 28.6You are considering opening a new plant. The plant will cost $102.5 million upfront and will take one year to build. After that, it is expected to produce profits of $28.4 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 6.7%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule? Here is the cash flow timeline for this problem: Years 0 Cash Flow ($ million) - 102.5 1 2 28.4 3 28.4 4 28.4 Forever 28.4You are considering opening a new plant. The plant will cost $104.8 million upfront and will take one year to build. After that, it is expected to produce profits of $28.2 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.8%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule?
- You are considering opening a new plant. The plant will cost $95.3 million upfront and will take one year to build. After that, it is expected to produce profits of $30.9 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 6.9%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule? Here is the cash flow timeline for this problem: Years 0 1 2 3 Cash Flow ($ million) - 95.3 Calculate the NPV of this investment opportunity if your cost of capital is 6.9%. 30.9 30.9 4 30.9 Forever 30.9You are considering opening a new plant. The plant will cost $98.2 million upfront. After that, it is expected to produce profits of $30.2 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 6.6%. 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. Calculate the NPV of this investment opportunity if your cost of capital is 6.6%. The NPV of this investment opportunity is $ million. (Round to one decimal place.)4. You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it for 15 years and then sell it at a profit. During this period, you would have to pay annual property taxes of $600 and have no income from the property. Assuming that you would want a 10% rate of return from the investment, a) Draw a cashflow diagram. b) What net price would you have to sell it in the next 15 years?
- You are considering opening a new plant. The plant will cost $96.2 million upfront and will take one year to build. After that, it is expected to produce profits of $30.8 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8.3%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule? (...) Calculate the NPV of this investment opportunity if your cost of capital is 8.3%. The NPV of this investment opportunity is $ 246.44 million. (Round to two decimal places.) Should you make the investment? (Select the best choice below.) O A. Yes, because the project will generate cash flows forever. B. Yes, because the NPV is positive. C. No, because the NPV is less than zero. D. No, because the NPV is not greater than the initial costs. Calculate the IRR. The IRR of the project is%. (Round to two decimal places.)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…You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $10.4 million today and $4.8 million in one year. The government will pay you $21.8 million in one year upon the building's completion. Suppose the interest rate is 10.2% a. What is the NPV of this opportunity? b. How can your firm turn this NPV into cash today? a. What is the NPV of this opportunity? The NPV of the proposal is $ million. (Round to two decimal places.)