Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
thumb_up100%
30. Your factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be $4.93 million per year. Your upfront setup costs to be ready to produce the part would be $7.91 million. Your discount rate for this contract is 7.8%.
a. What is the IRR?
b. The NPV is $4.84 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?
**round to two decimal places**
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 3 steps
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
- You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $79,000 immediately. If your cost of capital is 7.2%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? The minimum dollar amount is $ (Round to the nearest dollar) COOarrow_forwardFabco, Inc., is considering purchasing flow valves that will reduce annual operating costs by $10,000 per year for the next 12 years. Fabco’s MARR is 7%/year. Using an internal rate of return approach, determine the maximum amount Fabco should be willing to pay for the valves. $arrow_forwardYour factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be $5.02 million per year. Your upfront setup costs to be ready to produce the part would be $7.99 million. Your discount rate for this contract is 7.6%. a. What is the IRR? b. The NPV is $5.04 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule? a. What is the IRR? The IRR is %. (Round to two decimal places.)arrow_forward
- You have just been offered a contract worth $ 1.15 million per year for 7 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 12.4%. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? Question content area bottom Part 1 The most you can pay for the equipment and achieve the 12.4% annual return is $ enter your response here million. Round to two decimal places.)arrow_forwardYour factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.13 million. Your discount rate for this contract is 7.9%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm?arrow_forwardYour factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be $5.05 million per year. Your upfront setup costs to be ready to produce the part would be $7.92 million. Your discount rate for this contract is 7.5%. a. What is the IRR? b. The NPV is $5.21 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule? a. What is the IRR? The IRR is %. (Round to two decimal places.)arrow_forward
- Andes, Inc. is considering the replacement of its manual material handling equipment with autonomous vehicles at a net initial cost of $12 million. The expected annual savings in operating costs are as shown below. MARR is 10% per year compounded annually. End of Year 1 2 3 4 5 6 3 4.5 4.5 Annual savings (millions) | 2.25 | 2.25 | 3 Compute the simple payback period for this replacement option. Determine the discounted payback period (DPBP). It is enough if you determine in which year the DPBP falls.arrow_forward21. Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $5.00 million per year. Your upfront setup costs to be ready to produce the part would be $8.00 million. Your discount rate for this contract is 8.0%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? a. The NPV of the project is $____million. (Round to two decimal places.) What should you do? (Select the best choice below.) b. If you take the contract, the value added to the firm will be $____million. (Round to two decimal places.)arrow_forwardYour storage firm has been offered $100,000 in one year to store some goods for one year. Assume your costs are $95.700, payable immediately, and the cost of capital is 8.5%. Should you take the contract? The NPV will be $ (Round to the nearest cent.)arrow_forward
- Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.02 million. Your discount rate for this contract is 8.1%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? Question content area bottom Part 1 a. What does the NPV rule say you should do? The NPV of the project is $XXX enter your response here million. (Round to two decimal places.) Part 2 What should you do? (Select the best choice below.) A. The NPV rule says that you should accept the contract because the NPV less than 0. B. The NPV rule says that you should not accept the contract because the NPV less than 0. C. The NPV rule says that you should not accept the contract because the NPV greater…arrow_forwardA new project will allow you to sell a new product at $61 each. Variable costs are $24 each and fixed costs would run $75,000 per year. If there is no initial investment required, how many units would you have to sell annually to break-even (aka the "accounting break-even quantity")? (Round up to the next whole number of units.) O a. 1800 O b. 2147 O c. 2287 O d. 1778 Oe. 2028arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author: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 ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
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