Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Delta Plc is considering investing in bespoke software solutions, which requires an initial investment of £130,000. The annual
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a) Calculate the ARR of the project, taking inflation into account.
b) Calculate the (undiscounted) Payback Period of the project, taking inflation into account.
c) Calculate the
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- You are considering opening a new plant. The plant will cost $95.1 million up front and will take one year to build. After that it is expected to produce profits of $31.8 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. The NPV of the project will be $ million. (Round to one decimal place.)arrow_forwardThe table below is a forecast of annual net cashflows on a business project with a five-year lifespan. Year 1 2 3 4 5 Net Cash Flow -£50,000 £185,000 £370,000 £450,000 £110,000 An investment analyst, having assessed the risks, suggests an annual cost of capital for the project of 8.25%. Required: a) Calculate the present value of the forecast net cash flows based on the minimum required return. b) The project requires an initial investment of £800,000. Calculate the net present value. c) Outline the case for using the net present value principle as an investment decision-making tool and explain why investors should accept or reject the above investment opportunity.arrow_forwardYou are considering opening a new plant. The plant will cost $104.8 million upfront and will take one year to build. After that, it is expected to produce profits of $28.2 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.8%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule?arrow_forward
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- Vishanoarrow_forwardMett Co. is planning to develop a new product. A year after the launch of the product, itcan generate additional cash flows for the company of either £250,000, £110,000,£90,000 or £50,000, with all four scenarios equally likely. The project requires an initialinvestment of £90,000. The company’s beta is 0.65, its cost of capital is 6%, and the riskfree rate is 3%. Assume perfect capital markets. a) What is the Net Present Value (NPV) of the project? b) Suppose that the project is sold to investors as an all-equity firm to raise funds forthe initial investment. The cash flows of the project will be distributed to equityholders in one year. How much money can be raised in this way – that is, what isthe initial market value of the unlevered equity? Explain your answer.arrow_forwardI am opening a new factory. The factory will cost $10 million up front. I expect a cash flow of $6 million next year. The cash flows will grow at a rate of 1%. The NPV is $111,200,000. 1. draw the NPV vs r graph and locate the IRR 2. based on the graph, would I accept or reject the project if the cost of capital is between 3% and 5%arrow_forward
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