Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- A project will have an initial investment requirement of $5,000. Then, it will generate 5 years of $1,000 per year, with all cash expected to be received at the end of the year. The discount rate is 10%. The hurdle rate is the same as the discount rate, 10%. 9.What is the NPV? 10.What is the Payback? 11.What is the IRR. 12.Do you accept this project? 13.At WHAT HURDLE RATE would the project result in an NPV of exactly $0?arrow_forward(Ignore income taxes in this problem.) Your Company is considering an investment in a project that will have a three-year life. The project will provide a 4% internal rate of return and is expected to have a $40,000 cash inflow the first year and a $0 cash inflow in the second year, and $50,000 cash inflow in the third year. What investment is required in the project?arrow_forwardYOU ARE A FINANCIAL ANALYST FOR A COMPANY THAT IS CONSIDERING A NEW PROJECT. IF THE PROJECT IS ACCEPTED, IT WILL USE A FRACTION OF A STORAGE FACILITY THAT THE COMPANY ALREADY OWNS BUT CURRENTLY DOES NOT USE. THE PROJECT IS EXPECTED TO LAST 10 YEARS, AND THE ANNUAL DISCOUNT RATE IS 10% (COMPOUNDED ANNUALLY). YOU RESEARCH THE POSSIBILITIES, AND FIND THAT THE ENTIRE STORAGE FACILITY CAN BE SOLD FOR €100,000 AND A SMALLER (BUT BIG ENOUGH) FACILITY CAN BE ACQUIRED FOR €40,000. THE BOOK VALUE OF THE EXISTING FACILITY IS €60,000, AND BOTH THE EXISITING AND THE NEW FACILITIES (IF IT IS ACQUIRED) WOULD BE DEPRECIATED STRAIGHT LINE OVER 10 YEARS (DOWN TO A ZERO BOOK VALUE). THE CORPORATE TAX RATE IS 40%. DISCUSS WHAT IS THE OPPORTUNITY COST OF USING THE EXISTING STORAGE CAPACITY?arrow_forward
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