Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Net Present Value
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Investment Decision
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Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, e…
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitab…
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NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow c the restaurant is an initial cost of $1,560,000 with cash flows over the next six years of $220,000 (year one), $270,000 (year two), $290,000 (years three through five), and $1,790,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,410,000 with cash flows over the next four years of $400,000 (years one through three) and $2,920,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 10.0% and the appropriate discount rate for the sports facility is 12.0%, use the NPV to determine which project Grady should choose for the parcel of land. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change? *** If the appropriate discount rate for the restaurant is 10.0 %, what is the NPV of the restaurant project? (Round to the nearest cent.)
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Transcribed Image Text:NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow c the restaurant is an initial cost of $1,560,000 with cash flows over the next six years of $220,000 (year one), $270,000 (year two), $290,000 (years three through five), and $1,790,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,410,000 with cash flows over the next four years of $400,000 (years one through three) and $2,920,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 10.0% and the appropriate discount rate for the sports facility is 12.0%, use the NPV to determine which project Grady should choose for the parcel of land. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision change? *** If the appropriate discount rate for the restaurant is 10.0 %, what is the NPV of the restaurant project? (Round to the nearest cent.)
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