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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(d) Determine the discounted payback period using after-tax cash flows. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g. 5,125.36.) Discounted payback period (e) (f) Save for Later Find the ARR. (Round answer to 1 decimal place, e.g. 15.2%.) ARR Save for Later Profitability index % Save for Later Attempts: 0 of 2 used Submit Answer Calculate the profitability index for this investment. (Round answer to 2 decimal places, e.g. 15.25.) Attempts: 0 of 2 used Attempts: 0 of 2 used Submit Answer Submit Answer
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Transcribed Image Text:(d) Determine the discounted payback period using after-tax cash flows. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g. 5,125.36.) Discounted payback period (e) (f) Save for Later Find the ARR. (Round answer to 1 decimal place, e.g. 15.2%.) ARR Save for Later Profitability index % Save for Later Attempts: 0 of 2 used Submit Answer Calculate the profitability index for this investment. (Round answer to 2 decimal places, e.g. 15.25.) Attempts: 0 of 2 used Attempts: 0 of 2 used Submit Answer Submit Answer
The consulting company Harris White & Jackson (HW J) is in that never-ending budgeting phase of the year. Realizing that they couldn't defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers will be sold for market value. When the new computers reach the end of their useful lives, they will be sold as well. The cost of the combined new computers and annual software updates should be more than covered by efficiency gains and increased volume of sales - at least that's what the managers are expecting. Information related to this investment is as follows. Cost of new computers Salvage value of new computers at end of useful life Life of new computers (years) Market value of old computers today (equal to book value) Annual software update cost (necessary for all computers, old or new) Annual operating cash inflows from efficiency gains and increased sales due to new computers Minimum required rate of return Applicable tax rate Click here to view the factor table Determine if this investment makes sound financial sense for this company by completing the following. (a) $25,400 $2,400 NPV $ Based on this NPV amount, is the IRR higher or lower than 5%? 5 $2,000 $3,200 $9,500 5% Calculate the NPV of this investment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g. 5,125.36. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) 24%
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Transcribed Image Text:The consulting company Harris White & Jackson (HW J) is in that never-ending budgeting phase of the year. Realizing that they couldn't defer a technology update any longer, the managers plan to replace all of the computers in the office. The old computers will be sold for market value. When the new computers reach the end of their useful lives, they will be sold as well. The cost of the combined new computers and annual software updates should be more than covered by efficiency gains and increased volume of sales - at least that's what the managers are expecting. Information related to this investment is as follows. Cost of new computers Salvage value of new computers at end of useful life Life of new computers (years) Market value of old computers today (equal to book value) Annual software update cost (necessary for all computers, old or new) Annual operating cash inflows from efficiency gains and increased sales due to new computers Minimum required rate of return Applicable tax rate Click here to view the factor table Determine if this investment makes sound financial sense for this company by completing the following. (a) $25,400 $2,400 NPV $ Based on this NPV amount, is the IRR higher or lower than 5%? 5 $2,000 $3,200 $9,500 5% Calculate the NPV of this investment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places e.g. 5,125.36. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) 24%
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Step 2: Finding Cash flows at the end of five years
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