Strange Manufacturing Co. is purchasing a production facility at a cost of $21 million. The firm expects the project to generate annual cash flows of $7 million annually over the next five years. Its cost of capital is 10%. What is the net present value of this project? O $5,535,507 O $6,535,507 O $6,213,909 O $890,197

Strange Manufacturing Co. is purchasing a production facility at a cost of $21 million. The firm expects the project to generate annual cash flows of $7 million annually over the next five years. Its cost of capital is 10%. What is the net present value of this project? O $5,535,507 O $6,535,507 O $6,213,909 O $890,197

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A project requires a $3 million investment in net working capital (NWC) today, and will be fully recovered in 10 years. What is the PV of the NWC cash flows if r = 0.12 per annum? Enter answer in millions of dollars, rounded to the nearest thousandth (3rd digit), as in "1.123" million.
Your company is currently considering two investment projects. Each project requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and the investments will produce the following after tax cash flows: Year Project A Project B 1 $5,000,000 $20,000,000 2 $10,000,000 $10,000,000 3 $15,000,000 $8,000,000 4 $20,000,000 $6,000,000 a) Calculate the payback period for both projects, then compare to identify which project the firm should undertake. [Note: you are supposed to show every step of your calculation and interpret the result.] b) Evaluate the advantages and disadvantages of using the payback method in investment decisions and assess the situations where it should be used. [Note: remember to use Harvard referencing to reference your sources]
Normal Manufacturing Co. is purchasing a production facility at a cost of $22.5 million. The firm expects the project to generate annual cash flows of $7 million over the next five years. What is the internal rate of return on this project? (Round the finall answer to the nearest percent.) 20% 18% O 17% O 19%
Acme Company is expanding and expects operating cash flows of $85,000 a year for 4 years as a result. This expansion requires $240,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires a $15,000 investment in net working capital (assume NWC will be recovered at the end of the project). What is the net present value of this expansion project at a required rate of return of 15 percent? Question 1 options: $(3,375.49) $(3,638.02) $(3,750.54) $(3,563.01) $(3,825.55)
Imagine a project with the initial investment of $35,000. The project is expected to last 10 years, with the discount rate of 8.80% and the annual (cash flow) growth rate of 1.20%. If the first year CF is $8,850, what is the NPV of this project? $27,000 $25,000 $26,000 $27,500 $26,500
Project A would cost $47,027.00 today and have the following other expected cash flows: $27,934.00 in 1 year, $19,189.00 in 2 years, $4,818.00 in 3 years, and $3,140.00 in 4 years. The cost of capital for project A is 11.44 percent. Project B would cost $97,253.00 today and have the following other expected cash flows $56,053.00 in 1 year, $24,308.00 in 2 years, $26,936.00 in 3 years, and $2,980.00 in 4 years. The cost of capital for project B is 7.68 percent Statement 1: Project A would be accepted based on the project's internal rate of return (IRR) and the IRR rule Statement 2: Project B would be accepted based on the project's payback period and the payback rule if the payback threshold is 2.58 years Statement 1 is false and statement 2 is false 0000 Statement 1 is true and statement 2 is false Statement 1 is false and statement 2 is true Statement 1 is true and statement 2 is true
Visno
An investment project requires a net investment of 100,00. The project is expected to generate annual net cash inflows of 28,000 for the next 5 years. The firm's cost of capital is 12 percent. Determine the net present value of for the project
What is the Profitability Index of a project that costs $28,000 today and is expected to generate annual cash inflows of $3,000 for the following 11 years. Cost of capital is 7%. Round to two decimal places.
A proposed nuclear power plant will cost $ 965 million and then produce cash inflows of $ 147 million per year for 16 years. What is the NPV of the project assuming a 7.2 percent required rate of return?
A project has an initial outlay of $2,255. The project will generate annual cash flows of $536 over the 5-year life of the project and terminal cash flows of $328 in the last year of the project. If the required rate of return on the project is 17%, what is the net present value (NPV) of the project?
A firm is considering investing in a new project with an upfront cost of $300 million. The project will generate an incremental free cash flow of $50 million in the first year and this cashflow is expected to grow at an annual rate of 5% forever. If the firm's WACC is 11%, what is the value of this project? A. $833.3 million B. $875.0 million C. $575.0 million D. $533.3 million

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