Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Following is information on two alternative investments projects being considered by Tiger Company. The company requires a 15% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project X1 Initial investment $ (100,000) Net cash flows in: Year 1 37,000 Year 2 Year 3 47,500 72,500 Project X2 $ (150,000) 78,000 68,000 58,000 a. Compute each project's net present value. b. Compute each project's profitability index. If the company can choose only one project, which should it choose on th basis of profitability index? Complete this question by entering your answers in the tabs below. Required A Required B Compute each project's net present value. (Round your answers to the nearest whole dollar.) Net Cash Present Value of Present Value of Flows 1 at 15% Net Cash Flows Project X1 Year 1 Year 2 Year 3 Totals Initial investment Net present value $ 0 $ 0 $ 0 Project X2 Year 1 Year 2 Year 3 Totals $ 0 $ EA Initial…arrow_forwardCalculate Internal Rate of Return to the investor based on a sale of the project at 12/31/26 using a 6.75% Cap Rate as sale value and 2% closing costs. Assume minimum $10,000 working capital at end of every year. All other cash flow is Distributable to investor.arrow_forwardRobust Ventures is planning to expand its production operation. It has identified three different technologies for meeting the goal. The initial investment and annual revenues with respect to each of the technologies are summarized in table below. Suggest the best technology which is to be implemented based on the future worth method of comparison assuming 20% interest rate, compounded annually. Annual Revenue (Php) Initial Life Investment (years) (Php) Technology X 1,200,000 400,000 10 Technology Y 2,000,000 600,000 10 Technology Z 1,800,000 500,000 a. Technology X since it has the highest revenue. O b. Technology X since it is the least costly. c. Technology Z since it has the highest revenue. O d. Technology Y since it has the highest revenue. 10arrow_forward
- In your first job with TBL Inc. your task is to consider a new project whose data are shown below. What is the project's Year 1 cash flow? The annual operating cash flows of the project can be calculated as follows: OCF = {[Sales - Operating Costs]*(1-Tax Rate)} + (Depreciation * Tax Rate) Sales revenues $225,250 Depreciation $72,602 Other operating costs $92,000 Tax rate 28%arrow_forwardThe capital cost of a certain project is $625,000 and the annual expenses are $33,000. If the study period is 11 years, what is the present worth of this investment assuming 7.25% interest rate? O a. -$380,596 O b. -$244,404 O c. $380,596 O d. -$869,404 O e. $869,404arrow_forwardConsider the following proposed capital investment in an engineering project and determine its (a) year-by-year ATCF, (b) after-tax AW, and (c) annual equivalent EVA.arrow_forward
- Following is information on two alternative investments being considered by Jolee Company. The company requires a 8% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project A $(171,325) Project B $(159,960) Initial investment Expected net cash flows in: 35,000 59,000 55,000 Year 1 54,000 45,000 87,295 81,400 65,000 Year 2 Year 3 73,000 20,000 Year 4 Year 5 a. For each alternative project compute the net present value. b. For each alternative project compute the profitability index. If the company can only select one project, which should it choose? Complete this question by entering your answers in the tabs below. Required A Required B For each alternative project compute the net present value.arrow_forwardConsider a piece of equipment for which the expenditure at the beginning of period 1 is $20,000 The net revenue at the end of year 1 is $8,000 The net revenue at the end of year 2 is $14,000 The net revenue at the end of year 3 is $18,000, which includes salvaging the equipment. The interest rate is 5%. What is the net present value of this investment over the three year period including the initial purchase of the asset and the revenue from the first three years of operation (including sale of the equipment)?arrow_forwardConsider the following investment projects for SDL Engineering. All of the projects have a three-year investment life: Project’s Cash Flow ($) Time (n) Project A Project B Project C Project D 0 -$1,500 -$1,200 -$1,600 -$3,000 1 0 $600 -$1,800 $800 2 0 $800 $800 $1,900 3 $3,000 $1,500 $2,500 $2,300 Compute the Net Present worth of each project where interest rate is 9%. Which project do you recommend based on the NPW? Other than the NPW, why else would you recommend this project? (you will be using the same rate that was for part A for this part. Calculate the IRR for each project Show all workings in excelarrow_forward
- Chase Brew Inc is considering an investment with the following information: initial investment in assets = $1,600,000 to be depreciated to $0 via straight-line method over 8-year project life sales will increase by $1,750,000/year expenses will increase by $1,240,000/year firm's marginal tax rate is 28% What is the incremental after-tax cash flow (OCF) per year associated with the following project? Enter answer in dollars, rounded to the nearest dollar.arrow_forwardA project proposal submitted to you for evaluation follow: Investment, including depreciable assets of P495,000 with economic life of six years) - Php 865,000 Annual sales revenue - PhP 750,00 Variable cost of sales - 43.5% Annual cash operating costs - 295,000 Income tax rate - 25% Required: a. Annual cash return, payback period and internal rate of return. b. If the corporate cost of capital is 8%, should the project be implemented ?arrow_forwardU3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows. Project Bono Project Edge Project Clayton Capital investment $176,000 $192,500 $212,000 Annual net income: Year 1 15,400 19,800 29,700 15,400 18,700 25,300 15,400 17,600 23,100 4 15,400 13,200 14,300 15,400 9,900 13,200 Total $77,000 $79,200 $105,600 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) Click here to view PV table. (a) Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.) years Project Bono years Project Edge years Project Claytonarrow_forward
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