ROR Using Present Worth, Future Worth or Annual Worth: An investment of $20000 in a certain machine will generate income of $7000 per year for 3 years, at which time the machine can be sold for $8000. If the company's MARR is 15% per year, should it buy the machine?

Q- roshu

Consider an income producing property that according to your assumptions and estimations is currently worth $4M on an unlevered basis when a 7.5% required rate of return is applied. One of the assumptions that you have made when arriving at that estimate is that you will sell the property in 6 years for a CAP of 8%, which translates to $4.4M at that future point in time. a. At what price will you sell the property in 6 years if all your assumptions materialized except that you will sell the property for a CAP of 7% instead of 8%? Show your calculations. b. All other things equal, by how much the situation described in part a affects the current value of the property.

Midlife Crisis Inc. (MCI) has two assets: epsilon1,60 in cash and an investment project. The cash is invested in the risk-free asset which earns 5% per year. The project requires an investment of £800 today and generates an expected cash flow of £1,600 one year from now. This opportunity recurs perpetually each year. Thus, for example, one year from now MCI can again invest £800 and generate epsilon1,600 one year subsequent to that investment. MCI has 800 shares outstanding. The market equity risk premium is 5% per year, and the investment project has a CAPM beta of 1. Assume a Modigliani and Miller world. When answering this question, state any additional assumptions you may need to make. Show your calculations. (a) Should MCI invest in the project? Explain.  (b) Suppose MCI's CFO decides to pursue the project. What is the value of MCI? (c) Suppose MCI's CFO decides to take the project and always pay out all free cash flow as a dividend. What is MCI's cum-dividend price expected to be…