The prospective exploration for oil in the outer continental shelf by a small, independent drilling company has produced a rather curious pattern of cash flows as follows: EOY Net Cash Flow 0 -548462 1-10 $200,000 10 -$1,500,000 The $1,500,000 expenses at EOY 10 will be incurred by the company in dismantling the drilling rig. Customarily, the company expects to earn at least 20 % per year on invested capital before taxes. Determine the ERR. (HINT: use percentage, but omit percent symbol).
Q: Two types of bonds are offered to you for bond investment considerations: P10,000, 5-year, 10% p.a.…
A: A debenture refers to a type of bond that has a medium to long range of maturity and is not…
Q: A student can afford to spend no more 150 e per month on a loan to pay his college fees. If the…
A: Compound = monthly = 12 Payment = p = 150 Interest rate = r = 2 / 12% Time = t = 5 * 12 = 60
Q: A positive price-to-book ratio indicates something is wrong with a company's use of its assets. True…
A: In the world of finance and investing, numerous metrics and ratios are utilized to evaluate the…
Q: A homeowner took out a 20-year fixed-rate mortgage of $185,000. The mortgage was taken out 9 years…
A: Mortgages are a type of loan that can be used to purchase or maintain a home, a plot of land, or any…
Q: March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth of 25-year 500% coupon bonds that pay…
A: Coupon Rate = 5% Market price = $1004.21 Face Value = $1,000 Flotation Cost = $19.83 Corporate Tax…
Q: Calculate the accrued interest (in $) and the total proceeds (in $) of the bond sale. (Round your…
A: Coupon rate = 10.425% Market price = 77 TIme since last interest = 85 days The commission per Bond =…
Q: Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $58 per share.…
A: Number of shares purchased 100 Price per share $58 New share price $48 Amount borrowed from…
Q: or working for NPV and EAA calculation?
A: EAA is calculated as shown below. EAA=NPV×r1-11+rnHere,Cost of capital/ WACC=rLife of project=n
Q: Valenzuela, Incorporated, has a cash cycle of 45.5 days, an operating cycle of 67 days, and an…
A: Operating cycle is calculated by taking the inventory turnover days and the account receivable days…
Q: Howzat Ltd has been selected as one of the preferred manufacturers of memorabilia cricket balls for…
A: 1.To calculate the number of cricket balls to be manufactured per month, we need to consider the…
Q: With everything else held constant, which of the following events should increase the internal rate…
A: IRR refers to internal rate of return. It is the rate at which net present value of a project is…
Q: PROBLEM 1: Use the "up-down" binomial pricing method to derive call option values for the following…
A: A call option refers to a derivative instrument that provides the choice of buying the associated…
Q: Problem 83 White Bakery plans to produce 15,000 cakes per year. The company is considering…
A: Net present value (NPV). It is a capital budgeting technique used for making investment decisions.…
Q: Assume that 3-month Treasury bills totaling $25 billion were sold in $10,000 denominations at a…
A: A treasury bill is a kind of debt security issued by the government and private companies for…
Q: Given the following information, what is the standard deviation for this stock? Probability of state…
A: State of nature Probability (P) Rate of Return ( R) Recession 0.12 0.19 Normal 0.75 0.11…
Q: Below is the price quote of a Treasury bond with $1,000 face value as of 12/31/2020. What is the…
A: A bond is a kind of debt security issued by the government and private companies to raise public…
Q: Give typing answer with explanation and conclusion You are considering purchasing a put on a stock…
A: Put option refers to an option which provides the right but the obligation is not provided at the…
Q: Company Z is expected to pay a dividend at year end of D1 = $1.50. This dividend is expected to…
A: WACC is the weighted cost of capital components used in the business. This includes two main…
Q: 3. The car that Deborah bought is 4 years old. She paid $9,600. This make and model depreciates…
A: Present value refers to the method of capital budgeting in which the current value of an asset that…
Q: An 8 year goverment bond makes annual coupon payments of 3% and offers a yeild of 12% annually…
A: Rate of return refers to the minimum return to be earned by the bondholders on the amount of…
Q: We are examining a new project. We expect to sell 8,800 units per year at $191 net cash flow apiece…
A: a) To calculate the NPV (Net Present Value) of the project and the value of the option to abandon,…
Q: A stock has an expected return of 17 percent, its beta is 1.35, and the risk-free rate is 4 percent.…
A: CAPM is capital asset pricing model to compute the cost of equity based on company risk index as…
Q: month, Company Z analyzed a project whose cash flows are shown below. However, before the decision…
A: The net present value is positive means the the gas inflow generated by companies greater than the…
Q: Which of the following project evaluation methods focuses on accounting income rather than cash…
A: Investment Appraisal Investment evaluation, often known as capital budgeting, is the process used by…
Q: Today's prices of 6-month call option on stocks XYZ Current price of the stock, S(t), is $50 Call…
A: A butterfly spread is an options trading strategy that involves the combination of multiple options…
Q: Amazos.com slock prices gave a realized return of 15%, 15%-15%, and -15% over four successive…
A: Time-weighted return takes compounding effect into calculation. In other words, time-weighted return…
Q: You are currently at time period 0, and you will receive the first payment on an annual payment…
A: Annuity is the series of equal cash payments over the period.
Q: You make $9,300 annual deposits into a retirement account that pays an APR of 9.9 percent compounded…
A: The FV of an account refers to the cumulative value of cash flows at a fixed future date assuming…
Q: Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon,…
A: To calculate the bond's nominal yield to call, we need to find the yield at which the present value…
Q: 4. A new car sells for $29,700. It exponentially depreciates at a rate of 6.35% to $24,300. How long…
A: Rate = 6.35% With the help of exponential formulae in Excel for the actual rate. Present Value (PV)=…
Q: Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the…
A: Yes. Negative free cash flow is not necessarily bad. Most rapidly growing companies have negative…
Q: The traditional line-item budget results in which of the following benefits? Appropriations are…
A: There are different methods of budgeting in organizations. One of these methods is traditional…
Q: Which of the following is FALSE about the differences between ETFs and Mutual Funds? Select one or…
A: Several statements have been given as a difference between ETFs and Mutual Funds. We have to find…
Q: Your part-time job pays you $175 per week. How much money would your parents need in an account…
A: Simple interest means that the interest is paid only on the principal. Unlike compound interest…
Q: A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5…
A: WACC 10% Year Project 1 Cashflows Project 2 Cashflows Pv factor NPV1 0 -450…
Q: Suppose that XTel currently is selling at $50 per share. You buy 800 shares using $30,000 of your…
A: Purchase Price of Share is $50 No. of Shares is 800 Own Money is $30,000 Rate on Margin Loan is 7%
Q: 5) Asset P has a beta of 0.9. The risk-free rate of return is 8 percent, while the return on the…
A: The required return of an asset is the rate of return required by an investor considering the risks…
Q: Garida Co. is considering an investment that will have the following sales, variable costs, and…
A: NPV has to be calculated under different situations of depreciation methods. The annual cash flows…
Q: Jiminy's Cricket Farm issued a 30-year, 5.6 percent semiannual bond 2 years ago. The bond currently…
A: Book value is the value represented on the balance sheet of the company whereas the market value is…
Q: 24. Following are a company's income statement at the end of the last year (year 0) and coming year…
A: Free cash flows are cash flows that are available for investors after firm has met all operating…
Q: Sentry Manufacturing paid a dividend yesterday of $5 per share (D0 = $5). The dividend is expected…
A: Cost of retained earning is equal to cost of equity because retained earning are the part of owner's…
Q: Stock options on Microsoft, September 4, 2019 Expiration Strike Call Put 27-September-2019 130 8.65…
A: A call option is a type of financial contract that gives the buyer the right, but not the…
Q: The WACC K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which…
A: In the given case, we have provided the cost of each capital and their weight . So, the weighted…
Q: An investment company pays 7% compounded semi annually. You want to have 14,000 in the future. How…
A: The idea of the time value of money (TVM) holds that a quantity of income is valued currently more…
Q: You are scheduled to receive $19,000 in two years. When you receive it, you will invest it for six…
A: Present value means today's value of the future value of money. It means that the present time…
Q: A project requires a $834,000 initial investment for equipment. The equipment is estimated to have…
A: Data given Initial investment=$834,000 Useful life=8 year Salvage value=$74000 Average annual…
Q: 4. An employee is paid $3600 for the first month. She is paid an additional 1% at the end of the…
A: Let's call the employee's base salary for the first month "x". We know that x is equal to $3600. At…
Q: Interest Rate Parity The nominal yield on 6-month T-bills is 4%, while default-free Japanese bonds…
A: It is important to note that any predictions or projections of investment returns are inherently…
Q: You are targeting a retirement portfolio value of $1,700,000 in 25 years. You plan to make annual…
A: The annual payment is an annuity. We need to find the amount of annuity that will give us a future…
Q: A part) Your relative has promised to remember you in her will. You will receive $1,000,000…
A: The present value represents the current worth of the stream of future expected cash flows. It is…
Please no written by hand solution
Step by step
Solved in 4 steps
- The Amani Company is planning a $200,000 equipment investment that has an estimated eight-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment. Year Cash Inflows $120,000 $70,000 $60,000 $60,000 $60,000 Total $370,000 1 4. Assuming that the cash inflows occur evenly over the year, what is the payback period for the investment? (Ignore income taxes in this problem.)The Marigold Company is planning to purchase $577,000 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Year 1 2 3 456 7 Total Projected Cash Flows $214,000 169,500 124,500 Payback period 55,200 55,200 48,500 The company 48,500 (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. $715,400 years and (b) If Marigold requires a payback period of 4 years or less, should the company make this investment? months. make this investment.Sanka Company is considering the purchase of an asset for $360,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $80,000 $50,000 $70,000 $250,000 $13,000 $463,000 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.) Cumulative Net Cash Inflow Year Cash Inflow (Outflow) (Outflow) $ (360,000) 1 3 4 Payback period %3D
- Beyer Company is considering buying an asset for $270,000. It is expected to produce the following net cash flows. Year Year 1 $66,000 Initial investment Year 1 Year 2 Year 3 Year 4 Year 5 Total Net Cash Flows Net cash flows Compute the payback period for this Investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Perlod answer to 2 decimal places.) $ (270,000) Year 2 $39,000 Payback period = Year 3 $67,000 Cumulative Cash Flows Year 4 $200,000 Year 5 $22,000Accounting Rate of Return Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Cobre Company is considering the purchase of new equipment that will speed up the process for extracting copper. The equipment will cost $4,100,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project are as follows: Year Cash Revenues Cash Expenses 1 $6,000,000 $4,800,000 2 6,000,000 4,800,000 3 6,000,000 4,800,000 4 6,000,000 4,800,000 5 6,000,000 4,800,000 Emily Hansen is considering investing in one of the following two projects. Either project will require an investment of $75,000. The expected cash revenues minus cash expenses for the two projects follow. Assume each project is depreciable. Year Project A Project B 1 $22,500 $22,500 2 30,000 30,000 3 45,000 45,000 4 75,000 22,500 5 75,000 22,500 Suppose that a…he Novak Company is planning to purchase $502,100 of equipment with an estimated seven-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment. Year Projected Cash Flows 1 $193,500 2 141,500 3 94,500 4 79,200 5 79,200 6 45,000 7 45,000 Total $677,900 (a) Calculate the payback period for the proposed equipment purchase. Assume that all cash flows occur evenly throughout the year. Payback period years and months. (b) If Novak requires a payback period of three years or less, should the company make this investment? The company should notshould make this investment.
- Beyer Company is considering the purchase of an asset for $400,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year 1 Year 2 $80,000 Year 3 Year 4 Year 5 Total Net cash flows $80,000 $70,000 $200,000 $15,000 $445,000 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.) Cumulative Net Cash Inflow Year Cash Inflow (Outflow) (Outflow) 2$ (400,000) 3 4 Payback period = 2.Beyer Company is considering the purchase of an asset for $320,000. It is expected to produce the following net cash flows. The cash flows occur evenly within each year. Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $ 76,000 $ 44,000 $ 70,000 $ 250,000 $ 17,000 $ 457,000 Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal place.)Beyer Company is considering buying an asset for $230,000. It is expected to produce the following net cash flows. Year 1 Year 3 Year 4 Year 5 $53,000 $64,000 $150,000 $26,000 Net cash flows Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places.) Year Initial investment Year 1 Year 2 Year 3 Year 4 Year 5 Total Net Cash Flows $ (230,000) Year 2 $35,000 Payback period Cumulative Cash Flows
- Accounting Rate of Return Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Cobre Company is considering the purchase of new equipment that will speed up the process for extracting copper. The equipment will cost $3,600,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project are as follows: Year Cash Revenues Cash Expenses 1 $6,000,000 $4,800,000 2 6,000,000 4,800,000 3 6,000,000 4,800,000 4 6,000,000 4,800,000 5 6,000,000 4,800,000 Emily Hansen is considering investing in one of the following two projects. Either project will require an investment of $75,000. The expected cash revenues minus cash expenses for the two projects follow. Assume each project is depreciable. Year Project A Project B 1 $22,500 $22,500 2 30,000 30,000 3 45,000 45,000 4 75,000 22,500 5 75,000 22,500 Suppose that a…Tipton Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment Annual cash inflows Salvage value of equipment Life of the investment Required rate of return O 5 years O 15 years O2 years O 7.143 years $ 30,000 $ 6,000 $0 Chapter 8 15 10 The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period for the investment is: years %The L-S Mining Company is planning to open a new strip mine in western Pennsylvania. The net investment required to open the mine is $9 million. Net cash flows are expected to be +$17 million at the end of year 1 and +$11 million at the end of year 2. At the end of year 3, L-S will have a net cash outflow of $21 million to cover the cost of closing the mine and reclaiming the land. Use Table II to answer the questions. Calculate the net present value of the strip mine if the cost of capital is 3, 9, 11, 77, 87, and 92 percent. Enter your answers in millions. For example, an answer of $1.20 million should be entered as 1.20, not 1,200,000. Round your answers to two decimal places. k NPV 3% $ million 9% $ million 11% $ million 77% $ million 87% $ million 92% $ million What is unique about this project? The NPV is negative at discount rates between % and %, positive from % to % and negative beyond %. Should the project be accepted if L-S's cost of…
