age value of the investment at the end of each year is assumed to equal its book value. Ther- age value at the end of the investment's life. car 1 2 3 4 5 Book Value Investment Proposal $69,900 41,000 21,000 7,600 0 Annual Cash Flows ck here to view PV table. $46,000 40,600 ash payback period 36,000 31,000 24,220 Annual Net Income $11,300 11,700 16,000 17,600 ane Corporation uses an 11% target rate of return for new investment proposals. 16,620 mat is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 1C 3 years hat is the annual rate of return for the investment? (Round answer to 2 decimal places an

age value of the investment at the end of each year is assumed to equal its book value. Ther- age value at the end of the investment's life. car 1 2 3 4 5 Book Value Investment Proposal $69,900 41,000 21,000 7,600 0 Annual Cash Flows ck here to view PV table. $46,000 40,600 ash payback period 36,000 31,000 24,220 Annual Net Income $11,300 11,700 16,000 17,600 ane Corporation uses an 11% target rate of return for new investment proposals. 16,620 mat is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 1C 3 years hat is the annual rate of return for the investment? (Round answer to 2 decimal places 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

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The internal rate of return method is used to analyze a $831,500 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life. a. Determine a present value factor for an annuity of $1, which can be used in determining the internal rate of return. Carry your answer out to three decimal places. b. Based on the factor determined in (a) and the portion of the present value of an annuity of $1 table presented below, determine the internal rate of return for the proposal. Year 10% 15% 20% 1 0.909 0.870 0.833 1.736 1.626 1.528 3 2.487 2.283 2.106 4 3.170 2.855 2.589 5 3.791 3.353 2.991 6 4.355 3.785 3.326 7 4.868 4.160 3.605 %
Roopali is considering an investment proposal with the following cash flows: Initial investment-depreciable assets $45,000 Initial investment-working capital 5,000 Net cash inflows from operations (per year for 7 years) 10,000 Disinvestment-depreciable assets 3,000 Disinvestment-working capital 2,000 Determine the payback period. Round to one decimal place. Determine the accounting rate of return on initial investment. round to three decimal places. Determine the accounting rate of return on average investment
Flora Company has recorded the following cash flows at the end of each year for a project. If the discount rate of Flora Company is 11%, how much is the present value of the project?
Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $109,332. Estimated cash flows are expected to be $36,000 annually for 4 years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively. The internal rate of return for this investment is
Sunshine Corporation is reviewing an investment proposal. The initial cost of the investment is R52 500. The estimated cash flows and net profit for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. year Net cash flows Net profit 1 20000 2500 2 17500 3500 3 15000 4500 4 12500 5500 5 10000 6500 The cost of capital is 12%. Required:Calculate the following:1. Payback Period 2. Net Present value 3. Accounting rate of return
Motel Corporation is analyzing a capital expenditure that will involve a cash outlay of $208,240. Estimated cash flows are expected to be $40,000 annually for seven years. The present value factors for an annuity of $1 for seven years at interest of 6%, 8%, 10%, and 12% are 5.582, 5.206, 4.868, and 4.564, respectively. The internal rate of return for this investment is a.10% b.8% c.12% d.6%
Before evaluating the economic merits of a proposed investment, the XYZCorporation insists that its engineers develop a cash-flow diagram of the proposal. An investment of $10,000 can be made that will produce uniform annual revenue of $5,310 for five years and then have a market (recovery) value of $2,000 at the end of year (EOY) five. Annual expenses will be $3,000 at the end of each year for operating and maintaining the project. Draw a cash-flow diagram for the five-year life of the project. Use the corporation’s viewpoint.
Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping's cost of capital is 8.04 percent. What is the NPV of a project if the initial costs are $1,915,222 and the project life is estimated as 10 years? The project will produce the same after-tax cash inflows of $698,670 per year at the end of the year. Round the answer to two decimal places.
Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $109,332. Estimated cash flows are expected to be $36,000 annually for 4 years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively. The internal rate of return for this investment is a. 12% b. 3% c. 10% d. 9%
Motel Corporation is analyzing a capital expenditure that will involve a cash outlay of $208,240. Estimated cash flows are expected to be $40,000 annually for 7 years. The present value factors for an annuity of $1 for 7 years at interest of 6%, 8%, 10%, and 12% are 5.582, 5.206, 4.868, and 4.564, respectively. The internal rate of return for this investment is a.10% b.12% c.8% d.6%
Kumi Ltd is considering an investment in a project, which requires an immediate payment of GHS15,000, followed by a further investment of GHS5,400 at the end of the first year. The subsequent return phase net cash inflows are expected to arise at the end of the following years:Year 1 2 3 4 5 cashflows (GHS) 6,500 7,750 5,750 4,750 3,750You are required to estimate the internal rate of return of this project assuming the company’s cost of capital of 16%.
A project is estimated to cost $251,272 and provide annual net cash flows of $56,000 for eight years. Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown above.

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