Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
Bartleby Related Questions Icon

Related questions

Q: Explain CMO Mechanics?
A: Collateralized mortgage obligation: It is a financial instrument that raises funds by…
Q: For the second question, were you able to show how that problem would be worked out?
A: The par value is stated in the corporate charter and the company cannot issue shares below the par…
Q: Important Factors to Consider When Building a TCO Model Example of a TCO Model?
A: TCO model or Total Cost Ownership Model is an model used to estimate the cost of product or a…
Q: Going beyond just calculating NPV, discuss it qualitatively. What is it used for? Is it a good…
A: Net present value is defined as the difference between the PV of the cash inflows as well as present…
Q: Describe about the DVL methods and what are its advantages?
A: Dollar-value-LIFO: This method shows all the inventory figures at a dollar price rather than units.…
Q: What is the best-case scenario?
A: When companies are uncertain about the details of a project such as costs, inflows, interest rate…
Q: What is the project’s PI?
A: The PI index the profitability index of the project. The shows the profitability of the project…
Q: What is Gordon model?
A: Intrinsic value of a stock is based on the internal information of an organization. That is, market…
Q: How to choose a Benchmark?
A: Investors select a market index (or a mix of indices) as the portfolio's benchmark. An index…
Q: So how would we find basic EPS?
A: Basic EPS is calculated by dividing the earnings available to common stockholders by the weighted…
Q: Explain NAREIT Index?
A: NAREIT Index Rate: It implies the compound dividend yield which is communicated as far as a yearly…
Q: Describe about the intuitive approach?
A: Supervisors regularly depend on models and intuition to make fast decisions. Intuitive decision…
Q: Explain about the Black–Scholes model.
A: Black Scholes option pricing model is probably the most commonly used option pricing model in…
Q: What is Monte Carlo simulation analysis?
A: Answer: Monte Carlo simulation is the methodology used to consider the financial, cost, and project…
Q: Consider REMICs?
A: A real estate mortgage investment conduit (REMIC) is a difficult puddle of mortgage securities…
bartleby

Concept explainers

Inventory Accounting
Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.
Question

See the attached. What would be the correct solution?

### Project X Discounted Payback Period Analysis **Objective:** Compute the discounted payback statistic for Project X and determine whether the firm should accept or reject the project, given a cost of capital of 10 percent and a maximum allowable discounted payback of three years. #### Cash Flow Table | Time | 0 | 1 | 2 | 3 | 4 | 5 | |------|------|-----|-----|-----|-----|-----| | Cash Flow | -1,000 | 500 | 480 | 400 | 300 | 150 | #### Instructions - **Determine the discounted payback period:** Calculate the number of years required to recover the initial investment of -1,000 through discounted cash flows, considering a 10% cost of capital. - **Decision Criteria:** - If the discounted payback period is less than or equal to 3 years, accept the project. - If it exceeds 3 years, reject the project. #### Options 1. **3.49 years, reject** 2. **4.98 years, reject** 3. **2.49 years, accept** 4. **2.98 years, accept** #### Analysis - **Time Value of Money:** The cash flows need to be discounted to their present values to account for the cost of capital. - **Discounting Formula:** - Present Value = Future Cash Flow / (1 + r)^n - Where `r` is the discount rate (10%), and `n` is the year number. - **Determining Discounted Payback Period:** 1. Calculate the present value of each future cash flow. 2. Accumulate these present values until the initial investment is recovered. - **Final Decision:** Choose the option that fits the calculated discounted payback period against the project criteria. By using the data provided and following the instructions, you'll be able to identify the appropriate action for Project X based on the discounted payback method.
expand button
Transcribed Image Text:### Project X Discounted Payback Period Analysis **Objective:** Compute the discounted payback statistic for Project X and determine whether the firm should accept or reject the project, given a cost of capital of 10 percent and a maximum allowable discounted payback of three years. #### Cash Flow Table | Time | 0 | 1 | 2 | 3 | 4 | 5 | |------|------|-----|-----|-----|-----|-----| | Cash Flow | -1,000 | 500 | 480 | 400 | 300 | 150 | #### Instructions - **Determine the discounted payback period:** Calculate the number of years required to recover the initial investment of -1,000 through discounted cash flows, considering a 10% cost of capital. - **Decision Criteria:** - If the discounted payback period is less than or equal to 3 years, accept the project. - If it exceeds 3 years, reject the project. #### Options 1. **3.49 years, reject** 2. **4.98 years, reject** 3. **2.49 years, accept** 4. **2.98 years, accept** #### Analysis - **Time Value of Money:** The cash flows need to be discounted to their present values to account for the cost of capital. - **Discounting Formula:** - Present Value = Future Cash Flow / (1 + r)^n - Where `r` is the discount rate (10%), and `n` is the year number. - **Determining Discounted Payback Period:** 1. Calculate the present value of each future cash flow. 2. Accumulate these present values until the initial investment is recovered. - **Final Decision:** Choose the option that fits the calculated discounted payback period against the project criteria. By using the data provided and following the instructions, you'll be able to identify the appropriate action for Project X based on the discounted payback method.
Expert Solution
Check Mark
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
bartleby
This is a popular solution
See solutionCheck out a sample Q&A here
Step 1
VIEW
Step 2
VIEW
Step 3
VIEW
Step 4
VIEW
bartleby

Trending nowThis is a popular solution!

bartleby

Step by stepSolved in 4 steps

See solution
Check out a sample Q&A here
Blurred answer
Knowledge Booster
Background pattern image
Finance
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
Recommended textbooks for you
Text book image
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Text book image
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:9781260013962
Author:BREALEY
Publisher:RENT MCG
Text book image
Financial Management: Theory & Practice
Finance
ISBN:9781337909730
Author:Brigham
Publisher:Cengage
Text book image
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Text book image
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Text book image
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
SEE MORE TEXTBOOKS