Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Related questions
Question
Bunnings Ltd is considering investing in one of the two following projects to buy new equipment. Each equipment will last 5 years and have no salvage value at the end. The company's required
Equipment 1 Equipment 2
Cost $186,000 $195,000
Future Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
86 000
93 000
83 000
75 000
55 000
97 000
84 000
86 000
75 000
63 000
Required:
a) Identify which option of equipment should the company accept based on Profitability Index?
b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 7 steps with 5 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Your company is considering to choose one of the two projects: Project Gold and Project Diamond. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of two projects are provided below. Gold Diamond Cost $485 000 $520 000 Future Cash Flow Year 1 105 850 117 050 Year 2 153 250 162 400 Year 3 225 650 275 500 Year 4 245 000 255 000 Year 5 250 350 260 000 Required: a. Identify which project should your company accept based on Net Present Value method? b. Identify which project should your company accept based on Discounted Payback Period method if the payback criterion is maximum 2.5 years?arrow_forwardMalema Pty Ltd, a furniture manufacturer, has been offered an opportunity to accept a project that has the following mixed stream of cash flows over the next 5 years: 2 Year 1 3 Cash flow 7000 8000 9000 If the company must earn at least 12% on this project. What is the present value of this project? 4 10000 5 11000arrow_forwardAs entrepreneur is considering raising a bank loan to buy a firm year life span machine costing two millions(2,000,000) the cost of dept is 15% per annum and the machine will have no salvage value at the end of its life span. If the operation from the machine will yield the following annual cash flows. Year 1= #490000 Year 2=#420000 Year 3=#340000 Year 4=#400000 Year 5=#380000 Determine weather or not the manager should implement the project on the basis of 1. Net Present Value (NPV). 2. Profitability Index (PI). 3. Internal Rate if Return (IRR).arrow_forward
- Makayla Management Services is considering investing $150,000 in a project . Data related to the investment are as follows : Cash Inflows $40,000 $46,000 $34,000 $ 80,000 $40,000 The investment's payback period in years (rounded to three decimal points ) is : 2.625 3.450 2.225 3.375 3.250arrow_forwardA project will cost $100,000 and will last 5 years with no salvage value: Revenues Sales Operating Expenses: Rent Expense Depreciation Expense Miscellaneous Expense Total Expenses Net Income $70,000 $30,000 10,000 8,000 48,000 $22,000 Instructions a. Calculate the expected annual rate of return on this project showing calculations to support your answer. b. Calculate the cash payback on this project showing calculations to support your answer.arrow_forwardIf the cost of a project is $50,000 and the cash inflows are as given in the table below, what is the payback period for the project? Year CF $12,000 $15,000 3 $18,000 4 S20,000 $25,000 3.0 years O 2.75 years (3.25 years 4.5 years 4.0 yearsarrow_forward
- Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the projects Project A 5 years $84,480 $64,000 Project B 5 years $57,300 $50,000 Useful life Present value of cash inflows Present value of cash outflows What is the present value index for Project A?arrow_forwardHh1. Accountarrow_forwardPina Colada Manufacturing Company is considering three new projects, each requiring an equipment investment of $25,600. Each project will last for 3 years and produce the following cash flows. Year 1 2 3 AA BB $8,200 $11,100 $12,200 11,200 10,200 16,200 Total $34,600 (a) 11,100 11,100 Payback period $33,300 CC 10,200 The salvage value for each of the projects is zero. Pina Colada uses straight-line depreciation. Pina Colada will not accept any project with a payback period over 2.2 years, Pina Colada's minimum required rate of return is 12%. Click here to view PV tables. $33,600 Compute each project's payback period: (Round answers to 2 decimal places, e.g. 52.75.) AA years BB years CC yearsarrow_forward
- The following present value factors are provided for use in this problem. Periods 1 2 3 4 Present Value of $1 at 8% 0.9259 0.8573 0.7938 0.7350 Xavier Co. wants to purchase a machine for $37,800 with a four year life and a $1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,800 in each of the four years. What is the machine's net present value? Multiple Choice O O $4,595. $(5,477). $(4,595). Present Value of an Annuity of $1 at 8% 0.9259 1.7833 2.5771 3.3121 $43,277.arrow_forwardBluefield Inc. is considering a project that will require an initial investment of $20,000 and is expected to generate future cash flows of $5,000 for years 1 through 3 and $2,500 for years 4 through 6. The project’s payback period is: A. 6 years B. 5 years C. 4 years D. 67 yearsarrow_forwardi need the answer quicklyarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education