You own building V and building S. The next cash flow for each building is expected in 1 year. Building V has a cost of capital of 17.20 percent and is expected to produce annual cash flows of $369,045.00forever. Building S is worth $6,214,435.00 and is expected to produce annual cash flows of $169,044.00 forever. Which assertion is true?O Building V is more valuable than building S and building V is more risky than building SBuilding S is more valuable than building V and building S is more risky than building VO Building V is more valuable than building S and building S is more risky than building VO Building S is more valuable than building V and building V is more risky than building SBuilding V and building S either have the same value, the same level of risk, or both the same value and level of risk.لا

Perpetual cashflows means cash flows which will occur forever or for a indefinite period.

forew You own building V and building S. The next cash flow for each building is expected in 1 year. Building V has forever. Building S is worth $6,214,435.00 and is expected to produce annual cash flows of $169,044.00 O Building Vis more valuable than building S and building V is more risky than building S O Building S is more valuable than building V and building S is more risky than building V Building V is more valuable than building S and building S is more risky than building O Building S is more valuable than building V and building V is more risky than building O Building V and building S either have the same value, the same level of risk, V S or both the same value and level

forew You own building V and building S. The next cash flow for each building is expected in 1 year. Building V has forever. Building S is worth $6,214,435.00 and is expected to produce annual cash flows of $169,044.00 O Building Vis more valuable than building S and building V is more risky than building S O Building S is more valuable than building V and building S is more risky than building V Building V is more valuable than building S and building S is more risky than building O Building S is more valuable than building V and building V is more risky than building O Building V and building S either have the same value, the same level of risk, V S or both the same value and level

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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You own building U and building M. The next cash flow for each building is expected in 1 year. Building U has a cost of capital of 13.60 percent and is expected to produce annual cash flows of $141,820.00 forever. Building M is worth $5,359,454.00 and is expected to produce annual cash flows of $423,016.00 forever. Which assertion is true? O Building M is more valuable than building U and building U is more risky than building M O Building U is more valuable than building M and building U is more risky than building M O Building M is more valuable than building U and building M is more risky than building U O Building U is more valuable than building M and building M is more risky than building U O Building U and building M either have the same value, the same level of risk, or both the same value and level of risk.
You own building P and building X. The next cash flow for each building is expected in 1 year. Building P has a cost of capital of 8.20 percent and is expected to produce annual cash flows of $470,328.00 forever. Building X is worth $5,082,013.00 and is expected to produce annual cash flows of $124,252.00 forever. Which assertion is true? O Building P is more valuable than building X and building P is more risky than building X O Building P is more valuable than building X and building X is more risky than building P O Building X is more valuable than building P and building P is more risky than building X O Building X is more valuable than building P and building X is more risky than building P O Building P and building X either have the same value, the same level of risk, or both the same value and level of risk.
The value of an investment comes from its cash flows. Let’s say you are intent on receiving $45,000 per year, starting at the end of year one and continuing over 10 years. A lump sum of $380,000 invested now (year 0) will allow you to receive your desired annual amount. What interest rate is required to make this happen?
You own a building that is expected to pay annual cash flows forever. If the building is worth $2000000, the cost of capital is 5.0%, and annual cash flows are expected with the first one due in one year and all subsequent ones growing annually by 2.2%, then what is the amount of the cash flow produced by the building in 3 years expected to be?(Round the value to 0th decimal to get a whole number)
Assume that an industrial building can be purchased for $1,500,000 today, is expected to yield cash flows of $80,000 for each of the next five years (with the cash flows occurring at the end of each year), and can be sold at the end of the fifth year for $1,900,000. Calculate the internal rate of return (IRR) for this transaction. 6.78% O 10.37% O 9.73% O 344%
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.1 million. Investment A will generate $2.09 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.47 million at the end of the first year, and its revenues will grow at 2.3% per year for every year after that. a. Which investment has the higher IRR? b. Which investment has the higher NPV when the cost of capital is 6.6%? c. In this case, when does picking the higher IRR give the correct answer as to which investment is the best opportunity? a. Which investment has the higher IRR? The IRR of investment A is %. (Round to two decimal places.) The IRR of investment B is %. (Round to two decimal places.) Based on the IRR, you would pick investment A (Select from the drop-down menu.) b. Which investment has the higher NPV when the cost of capital is 6.3%? If the cost of capital is 6.3%, the NPV of investment A is $ million.…
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $9.8 million. Investment A will generate $2.06 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.51 million at the end of the first year, and its revenues will grow at 2.7% per year for every year after that. a. Which investment has the higher IRR? b. Which investment has the higher NPV when the cost of capital is 5.5%? c. In this case, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the best opportunity?
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.3 million. Investment A will generate $2.13 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.52 million at the end of the first year, and its revenues will grow at 2.1% per year for every year after that. a. Which investment has the higher IRR? b. Which investment has the higher NPV when the cost of capital is 5.3%? c. In this case, when does picking the higher IRR give the correct answer as to which investment is the best opportunity?
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.3 million. Investment A will generate $2.17 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.48 million at the end of the first year, and its revenues will grow at 2.6% per year for every year after that. a. Which investment has the higher IRR? b. Which investment has the higher NPV when the cost of capital is 5.9%? c. In this case, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the best opportunity?
Assume the following expected annual cash flows from operating a office property investment: Year 1 = $225,000; Year 2= $236,500; Year 3 = $248,000; Year 4 = $259,500; Year 5 = $271,000. If the net proceeds from the sale in Year 5 are $4.9 million and the property can be purchased today for 4.25 million, what is the expected return on the investment? 8.38% 10.00% O 12.15% 9.14%
You are asked to analyze the following scenario and determine its value. What it the most you would be willing to invest in this project if your required rate of return is 11%. (Assume cash flows occur at the end of each year). Cash flows Year 1-3: $150,000,000 Year 4: ($550,000,000) Year 5-10: $175,000,000 O $845,654,114 O $491,942,778 $346,568,100 $263,458,478
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.15 million. Investment A will generate $2.15 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.58 million at the end of the first year, and its revenues will grow at 2.5% per year for every year after that. a. Which investment has the higher IRR? b. Which investment has the higher NPV when the cost of capital is 5.6%? c. In this case, when does picking the higher IRR give the correct answer as to which investment is the best opportunity? a. Which investment has the higher IRR? The IRR of investment A is%. (Round to two decimal places.)

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