c. Kikwetu Limited is considering investing in a project with the following characteristics:The cost of the project = Sh. 100,000%3DUseful life = 4 yearsDepreciation method: straight line methodSalvage value of project : zero.Tax rate : 30%Required rate of return:10%.The expected sales and expenses (excluding depreciation) are provided below. Year14.Expected salesExpected expenses(Excluding Depreciation)110,000120,00060,00040,00070,00075,00035,00025,000Required:(i)(ii)(iii)Compute the net cash flows for this project over its useful life dSOWhat is the profitability index of the project?Should Kikwetu Ltd invest in the project based on the profitabilityindex?

Sales represent the amount of revenue which is generated from the rendering of goods or services by…

Compute the net cash flows for this project over its useful life so What is the profitability index of the project? Should Kikwetu Ltd invest in the project based on the profitability (i) (ii) (iii) index?

Compute the net cash flows for this project over its useful life so What is the profitability index of the project? Should Kikwetu Ltd invest in the project based on the profitability (i) (ii) (iii) index?

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

See similar textbooks

Related questions

Q: Should you subtract interest expense or dividends when calculating project cash flow?

A: It is one of the principal expenses found in the income statement. An organization must fund its…

Q: Assume that both Projects A and B have normal cash flows, with one outflow followed by a series of…

A: IRR(Internal ROR) is the rate at which NPV(Net Present Value) of a project is zero. At IRR, PV of…

Q: 1. Assuming the cost of capital is 12% , complete the table below by computing the payback period,…

A: We are given three sustainability-enhancing projects-A, B & C that a company is considering…

Q: 1) The internal rate of return (IRR) method assumes that project cash flows are reinvested at rate,…

A: Since you have asked multiple question , we will solve the first question for you. If you want any…

Q: Refer to the table below to answer the following question. Project Initial Investment NPV P 200…

A: Profitability index is the ratio of present value of cash inflows and present value of cash…

Q: What are the reinvestment rate assumptions for the NPV and the IRR? A.IRR: Risk Free Rate NPV:…

A: Introduction: This question is related to the concept of capital budgeting. It is nothing but an…

Q: Creditpoint LLC has received the following information for a Project The Present Value of Cash…

A: Net present value is one of the capital budgeting technique that can be used for evaluation of…

Q: Assume a project has normal cash flows. All else equal, which of the following statements is…

A: The correct answer is option (e). The weighted average cost of capital includes the cost of…

Q: Describe how NPV is calculated and describe the information this measure provides about a sequence…

A: NPV net present value is very important factor in deciding the feasibility analysis of projects. It…

Q: Consider the following projects: Cash Flows ($) Co Project D E -11,100 -21,100 C₁ 22, 200 34,500…

A: The Profitability Index is a financial indicator used to evaluate the attractiveness of an…

Q: Which of the following statements is CORRECT? Assume that the project being considered has normal…

A: WACC is the required rate of return, where as IRR is the actual rate of return of the project. NPV…

Q: The internal rate of return method assumes that the cash flows over the life of the project are…

A: IRR is the required rate of return for the project to have zero Net Present value.

Q: Which decision rule assumes that project cash flows are reinvested at the firm's weighted average…

Q: explain the net present value NPV (investment projects) of cash flow CF and the yield (using…

A: Net present value (NPV) is a technique of capital budgeting used to evaluate the investment in terms…

Q: Use available information to forecast incremental earnings what are the NWCs and ∆NWCs and forecast…

A: 0 1 2 3 4 5 1 COGS -11000 -11000 -11000 -11000 2 OPENING STOCK 0 0 0 0…

Q: Which one of the following statements is correct? The net present value is a measure of profits…

A: Net present value (NPV) is a financial metric used to evaluate the profitability of an investment or…

Q: How many of the following investment criteria always use all of a project's cash flows in their…

A: Capital budgeting techniques are used to determine whether the projects undertaken are profitable to…

Q: How can we easily automate the process of computing the net present worthof any project cash flow…

A: Net present value (NPV) is the contrast between the present value of money inflows over some…

Q: What is the total net present value of these projects? Total net present value

A: The future profitability of an investment, project, or business is assessed using net present value.…

Q: Consider cash flows for the following investment projects (MARR Q2. Suppose that projects are…

A: Here, Formula of Annual Equivalent is as follows: Annual Equivalent=Net Present ValuePVAF(i%,n)

Q: Allied uses debt in its capital structure, so some money use to finance the project will be deb.…

A: Capital budgeting is the process of evaluating and selecting long-term investments based on their…

Q: which of the following should not be included in the cash flows for project analysis?…

A: Meaning of the given options: Opportunity cost : It is the benefit foregone from not selecting the…

Q: rg Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net…

A: The question is based on the concept of selection of mutual exclusive capital project by use of…

Q: Citco Company is considering investing up to $504,000 in a sustainability enhancing project. Its…

A: The net present value represents the absolute profitability in dollar terms generated by a project…

Q: Which of the following cash flows are not considered in the calculation of the annual cash-flow for…

A: Proceeds from selling an old asset which is being replaced by a new asset It does not impact the…

Q: Which of the following should NOT be included in the cash flows for project analysis? Opportunity…

A: Explanation of the given option: 1. opportunity cost : It is the cost to be borne for not choosing…

Q: The cash flows associated with a project can be represented by the following decision tree…

A: Expected NPV:This is a capital budgeting technique and is considered more reliable than traditional…

Q: Which of the following statements is CORRECT? Assume that the project being considered has normal…

A: Statement A: FALSE Because project NPV is found by discounting the cash inflows at a discount rate…

Q: Question 1 Which one of the following statements is NOT correct? Group of answer choices If…

A: Capital budgeting is a technique to estimate the profitability of the projects. There are various…

Q: 17. Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow…

A: The objective of the question is to calculate the Internal Rate of Return (IRR) and Net Present…

Q: characteristics similar to the firm's average project. Bellinger's WACC is 10%. 0 1 2 3 4 Project A…

A: The net present value (NPV) method estimates how much a potential project will contribute to…

Q: Depending on the cash flow assumption, should the project must use continuous cash flow? why?

A: In continuous discounting and continuous cash flows, the assumption is that the cash stream happens…

Q: Which of the following projects have conventional cash-flow streams? Select all that are…

A: Solution:- Conventional cash flow stream is that cash flow stream in which the sign of cash flows…

Q: Linkin Corporation is considering purchasing a new delivery truck. The truck has many advantages…

A: Payback Period :— It is the period required to recover all the initial investment. If cash inflow is…

Q: Is the added precision from including taxes and depreciation in calculating project cash flows worth…

A: Cash flow refers to the movement of money into or out of a business, project, or financial…

Q: The net present value is ... O A. The return which is required for an investment OB. The current…

A: Capital budgeting The process that takes decisions related to investing for the long term is known…

Q: All techniques: Decision among mutually exclusive investments Pound Industries is attempting to…

A: Capital budgeting refers to the concept used for evaluating the viability of the project which is…

Q: Determine the values K, L, M, and N in the table. 3.2 Calculate the total present value of the net…

A: Net present value is the one of the important capital budegting method based on time value of money…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

c. Kikwetu Limited is considering investing in a project with the following characteristics:
The cost of the project = Sh. 100,000
%3D
Useful life = 4 years
Depreciation method: straight line method
Salvage value of project : zero.
Tax rate : 30%
Required rate of return:10%.
The expected sales and expenses (excluding depreciation) are provided below.

Year
1
4.
Expected sales
Expected expenses
(Excluding Depreciation)
110,000
120,000
60,000
40,000
70,000
75,000
35,000
25,000
Required:
(i)
(ii)
(iii)
Compute the net cash flows for this project over its useful life dSO
What is the profitability index of the project?
Should Kikwetu Ltd invest in the project based on the profitability
index?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: INTRODUCTION

Part i.

Part ii.

Part iii.

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

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

What is the cash payback period for this proposal? What is the annual rate of return for the investment? What is the net present value of the investment?
A firm is considering the following independent projects. Project Investment Present value offuture cash flows NPV A $130 $176 $46 B $103 $115 $12 C $183 $287 $104 D $161 $199 $38 E $184 $273 $89 What is the Profitability Index of Project B? Question 5Answer a. 0.85 b. 1.12 c. 0.89 d. 1.18
Consider the following two mutually exclusive projects: When (at what levels of the cost of capital) would choose project A? Cash Flows ($) Project C0 C1 C2 C3 A -90 +60 +50 0 B -100 0 0 +140 Multiple Choice When the cost of capital is less than 9.58% and more than 14.98% When the cost of capital is more than 9.58% and less than 14.98% When the cost of capital is more than 0% and less than 9.58% When the cost of capital is less than 9.58% and mroe than 11.87%
Over the life of a project, a project’s accounting earnings equal to its net cash flows Group of answer choices a) True b) False
Financial assets management decision-making often involves determination of the Present Value (PV) of the flow of money over time. If a monetary PV is given by: PV = Gt/(1+m)t (i) Identify and explain each of the variables: G, m, and t. (ii) Explain how an increase in m would impact the PV of this financial asset. (iii) Find how much would be required to generate a PV of 890, over a 5 years period, at a constant annual interest rate of 4 percent.
dentify if each of the following would be included or excluded in forecasting cash flows for a project. Synergies (positive externality) Opportunity costs Sunk costs Cannibalization (negative externality)
According to the profitability index criterion, a project is acceptable if its profitability index is greater than ____. a. 0 b. 1.1 c. or equal to 1 d. 1 plus the cost of capital
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. b. If a project has normal cash flows and its IRR exceeds its cost of capital, then the project's NPV must be positive. c. The IRR calculation implicitly assumes that all cash flows are reinvested at the cost of capital. d. If Project A has a higher IRR than Project B, then Project A must have the lower NPV. e. The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
Carmen, Inc. is considering three different independent investment opportunities. The present value of future cash flows, initial investment, net present value, and profitability index for each of the projects are as follows: Project A Project B Project C Present value of future cash flows $450,100 $313,100 $405,000 Initial investment 200,000 155,000 190, еее Net present value $250, 100 $158,100 $215,000 Profitability index 2.25 2.02 2.13 In what order should Carmen prioritize investment in the projects? Multiple Cholce С, В, А O A, B, C А, С, В C, A, B
Explain why the NPV of a relatively long-term project, defined as one for whicha high percentage of its cash flows are expected in the distant future, is moresensitive to changes in the cost of capital than is the NPV of a short-term project
This is a multiple choice question.
For a normal project, profitability index is the ratio of: a. The net present value of the project’s net cash flow to the project’s initial investment.b. The net present value of the project’s net cash flows to the project’s IRR.c. The present value of the project’s cash flows to the project’s IRR.d. The present value of the project’s cash inflows to the project’s initial investment.e. All of the above properly describe the profitability index.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

SEE MORE TEXTBOOKS