(c) Company X plans to purchase a methanol plant for $1 million. The plant is expected to generate $200,000 in total annual revenue at the end of its first year of operations, after which revenues are expected to grow by 2% per year as operations become more efficient. If the opportunity cost of capital in the market is 5%, determine: i. the net present value of this investment if the plant is expected to remain open forever. ii. if this company should purchase this plant. Give a reason for your answer

(c) Company X plans to purchase a methanol plant for $1 million. The plant is expected to generate $200,000 in total annual revenue at the end of its first year of operations, after which revenues are expected to grow by 2% per year as operations become more efficient. If the opportunity cost of capital in the market is 5%, determine: i. the net present value of this investment if the plant is expected to remain open forever. ii. if this company should purchase this plant. Give a reason for your answer

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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A company wants to expand their manufacturing facilities . they have two choices ,first to expand the current site at a cost of $290,000 per year for two years to complete the expansion ,or to sell their current site for $1.3 million and purchase a new larger facility at a cost of $ 900,000 in the industrial zone. a) if the annual interest rate is 8%,evaluate the cash flows for the two options described above and decide which is the most financially beneficial to the corporation? b) if the company wants to factor inflation in their calculations,what is the equivalent nominal interest rate if expected inflation rate is 4% in the coming years? critically discuss the significance of including the factor of inflation in corporate finance calculations .
Compute the net present value of this investment.
1. A start-up biotech company is considering making an investment of $100,000 in a newfiltration system. The associated estimates are summarized below: Annual receipts $75,000Annual expenses $45,000Useful life 8 yearsSalvage value $20,000 Straight line depreciation will be used, and the effective income tax rate is 20%. The After-tax MARR is 15% per year. Determine whether this investment is an attractive option for the company.
K Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.98 million. The product is expected to generate profits of $1.09 million per year for 10 years. The company will have to provide product support expected to cost $98,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year. a. What is the NPV of this investment if the cost of capital is 5.6%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.5%, respectively. b. What is the IRR of this investment opportunity? c. What does the IRR rule indicate about this investment? a. What is the NPV of this investment if the cost of capital is 5.6%? Should the firm undertake the project? Repeat the analysis for discount rates of 1.6% and 14.5%, respectively. If the cost of capital is 5.6%, the NPV will be $ (Round to the nearest dollar.) Should the firm undertake the project? (Select the best choice…
Company X is considering an investment project that requires an initial outlay of $500,000 and is expected to generate annual cash flows of $150,000 for five years. The company's cost of capital is 10%. • Calculate the NPV of the proposed investment project. Determine whether it is financially viable for Company X.
You are evaluating purchasing the rights to a project that will generate after tax expected operating cash flows of $91k at the end of each of the next five years, plus an additional $1,000k non-operating terminal period cash flow at the end of the fifth year. You can purchase this project for $531k. If your firm's cost of capital (aka required rate of return) is 14.3%, what is the NPV of this project? Note: All dollar values are given in units of $1k = $1000. Provide your answer in units of $1000, thus, $15000 = 15k and thus you should enter 15 for your answer.
You are evaluating an investment project, which has a cost of $161,000 today and is expected to provide after-tax annual cash flows of $20,000 for seven years. In order to compute the MIRR, you are modifying the cash flows. Assuming the cost of capital is 9.1 percent, what is the terminal cash flow of the modified cash flows? Question 12 options: $173,074 $176,474 $178,474 $180,974 $182,874 $184,574
12 Coyne Corporation is evaluating a capital investment opportunity. This project would require an initial investment of $31,000 to purchase equipment. The equipment will have a residual value at the end of its life of $1,000 The useful life of the equipment is 4 years. The new project is expected to generate additional net cash inflows of $22,000 per year for each of the four years. Coyne's required rate of return is 12% The net present value of this project is closest to (Cack the icon to view the present value of $1 table) (Click the icon to view the present value of annuity of $1 table) OA. 518,656 OB. $35.814 OC. $36,450 OD. $47.734 Data table Present Value of $1 Periods 3 4 5 6 Data table 10% 0.751 0.683 0.621 0.564 Present Value of Annuity of $1 Periods 3 4 5 6 10% 2.487 3.170 3.791 4.355 D D Print 12% 0712 0.636 0.567 0.507 Print 12% 2.402 3.037 3.605 4.111 Done Done 14% 0.675 0592 0.519 0.456 14% 2.322 2.914 3,433 3.889 111 16% 0.641 0.552 0.476 0.410 16% 2.246 2.798 3274…
Suppose Drake Pile Co. is considering a project to invest in a racehorse over the next 12 years. They anticipate that the project will cost $130, 000 to be paid. immediately and will yield revenue of $431, 500 in one lump sum 12 years from today. Find the internal rate of return (IRR) an the project if interest is compounded semiannually. Should Drake Pile Co. accept the project if their cost of capital is 11.69%?
Bha
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