Anjelo Jonathan a financial analyst for Blues Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Anjelo’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year earlier, investment X had a market value of $20,000; investment Y had a market value of $55,000. During the year, investment X generated cash flow of $1,500 and investment Y generated cash flow of $6,800. The current market values of investments X and Y are $21,000 and $55,000, respectively. A.) Calculate the expected rate of return on investments X using the most recent year’s data. (Format: 11.11%) B.) Calculate the expected rate of return on investments Y using the most recent year’s data. (Format: 11.11%) C.) Assuming that the two investments are equally risky, which one should Anjelo recommend? (Investment X or Investment Y)

Anjelo Jonathan a financial analyst for Blues Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Anjelo’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year earlier, investment X had a market value of $20,000; investment Y had a market value of $55,000. During the year, investment X generated cash flow of $1,500 and investment Y generated cash flow of $6,800. The current market values of investments X and Y are $21,000 and $55,000, respectively. A.) Calculate the expected rate of return on investments X using the most recent year’s data. (Format: 11.11%) B.) Calculate the expected rate of return on investments Y using the most recent year’s data. (Format: 11.11%) C.) Assuming that the two investments are equally risky, which one should Anjelo recommend? (Investment X or Investment Y)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8TP: Fenton, Inc., has established a new strategic plan that calls for new capital investment. The...

See similar textbooks

Similar questions

Regarding the proposed investments, XYZ INC. gathers the following data: a cash cost of 13,000, net annual cash flows of 45,000, and a present value factor of 5.40 rounded for cash inflows over a ten-year period. Find out all the relevant details that will be important when choosing an investment. Please let me know whether you think our firm should receive an investment based on the following information:
Rate of return Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Douglas’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year earlier, investment X had a market value of $20,000, and investment Y had a market value of $55,000. During the year, investment X gener-ated cash flow of $1,500, and investment Y generated cash flow of $6,800. The cur-rent market values of investments X and Y are $21,000 and $55,000, respectively. a. Calculate the expected rate of return on investments X and Y using the most recent year’s data.b. Assuming the two investments are equally risky, which one should Douglas rec-ommend? Why
You have invested in a business that proudly reports that it is profitable. Your investment of $4000 has produced a profit of $201. The managers think that if you leave your $4500 levested with them, they should be able to generate $291 per year in profits for you in perpetuity. Evaluating other investment opportunites, you note that other long-term investments of similar risk offer an expected return of 7.9%. Should you remain invested in this fr ? The expected ratus of your envestment is__? (Round to one decimal)
Nu Things, Inc., is considering an investment in a business venture with the following anticipated cash flow results: Assume MARR is 20% per year. Based on an external rate of return analysis (1) determine the investment’s worth; (2) state whether or not your results indicate the investment should be under taken; and (3) state the decision rule you used to arrive at this conclusion.
Nu Things, Inc., is considering an investment in a business venture with the following anticipated cash flow results: Assume MARR is 20% per year. Based on an internal rate of return analysis (1) determine the investment’s worth; (2) state whether or not your results indicate the investment should be undertaken; and (3) state the decision rule you used to arrive at this conclusion.
Imagineering, Inc., is considering an investment in CADCAM compatible design software with the cash flow profile shown in the table below. Imagineering’s MARR is 18%/year. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Should Imagineering invest?
Erik Fineman estimates that over the past five years the arithmetic average return of his Bitcoin investment is 13.16%. He knows that during the first two years his Bitcoin investment earned a return of 16.11% and 23.82%, respectively. During the last two years, Erik knows that his Bitcoin investment earned a return of -11.53% and 9.58%, respectively. Given this information, during the third year, Erik Fineman’s Bitcoin investment earned a return of: a. 25.04% b. 14.66% c. 22.26% d. 4.76% e. 27.82%
Imagineering, Inc., is considering an investment in CAD-CAM compatible design software with the cash flow profile shown in the table below. Imagineering’s MARR is 18%/year. Solve, a. What is the future worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on future worth? c. Should Imagineering invest?
Jupiter is considering investing time and administrative expense on an effort that promises one large payoff in the future, followed by additional expenses over a 10-year horizon. The cash flow profile is shown in the table below. Jupiter’s MARR is 12%/year. Solve, a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Should Jupiter invest?
Jupiter is considering investing time and administrative expense on an effort that promises one large payoff in the future, followed by additional expenses over a 10-year horizon. The cash flow profile is shown in the table below. Jupiter’s MARR is 12%/year. Solve, a. What is the annual worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on annual worth? c. Should Jupiter invest?
As part of their investment strategy, the Carringtons have decided to put $100,000 into stock market investments and also into purchasing precious metals. The performance of the investments depends on the state of the economy in the next year. In an expanding economy, it is expected that their stock market investment will outperform their investment in precious metals, whereas an economic recession will have precisely the opposite effect. Suppose the following payoff matrix gives the expected percentage increase or decrease in the value of each investment for each state of the economy. Stock market investment Commodity investment Expanding Economic economy recession -10t 10 commodities 15 5 (a) Determine the optimal investment strategy for the Carringtons' investment of $100,000. (Round your answers to the nearest dollar.) stocks $ $ PRACTICE ANOTHER (b) What profit can the Carringtons expect to make on their investments over the year if they use their optimal investment strategy?…
As part of their investment strategy, the Carringtons have decided to put $100,000 into stock market investments and also into purchasing precious metals. The performance of the investments depends on the state of the economy in the next year. In an expanding economy, it is expected that their stock market investment will outperform their investment in precious metals, whereas an economic recession will have precisely the opposite effect. Suppose the following payoff matrix gives the expected percentage increase or decrease in the value of each investment for each state of the economy. Expanding Economic economy recession Stock market investment Commodity investment 30 5 -10 20 (a) Determine the optimal investment strategy for the Carringtons' investment of $100,000. (Round your answers to the nearest dollar.) stocks $ commodities $