The finance director of a limited company is considering a number of investment projects in theleisure sector to expand the business.Name or ProjectInitial outlayProfit stream£1.2m£400k at the end of each yearfor 4 yearsA£10kLoss of £1k per year for 2years, followed by profit of£30k per year for 2 yearsВ£1.0m£600k at the end of each yearfor 3 yearsAt the end of each year (for 3years) there is a 50% chanceof a £500k profit and a 50%chance of a £100k lossD£0.4m(You may assume that all profits and losses are made at the end of the year in question. You donot need to consider part years)Your investment advisor says he believes project D has a net present value of £0 when takinga discount rate of 20%. Describe how you think your investment advisor may be treating theuncertainty in the cashflows.

Net Present Project (NPV) is one of the method of capital budgeting. It is the difference present…

Answered: The finance director of a limited…

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

See similar textbooks

Similar questions

Payback Period Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Colby Hepworth has just invested $500,000 in a book and video store. She expects to receive a cash income of $120,000 per year from the investment. Kylie Sorensen has just invested $1,540,000 in a new biomedical technology. She expects to receive the following cash flows over the next 5 years: $350,000, $490,000, $770,000, $490,000, and $280,000. Carsen Nabors invested in a project that has a payback period of 4 years. The project brings in $960,000 per year. Rahn Booth invested $1,550,000 in a project that pays him an even amount per year for 5 years. The payback period is 2.5 years. Required: 1. What is the payback period for Colby? Round your answer to two decimal places.years 2. What is the payback period for Kylie? Round your answer to one decimal place.years 3. How much did Carsen invest in the project? $ 4. How much cash does Rahn receive each year? $per year
- calculate the minimum payback period - calculate the NVP of the projected cash flow - calculate the internal rate of return (IRR) Expansion Project Title Project Description and Details Project Cost (Initial Investment) First-Year Cash Flow Annual Growth Rate (5 years) Expenses as a percentage of Revenues Payback Period NPV IRR Purchase of Snapple Beverage Company This would be a total acquisition of Snapple Beverage Company. This company manufactures a line of ice teas of various flavors and has a reputation for using the best materials on Earth for making their drinks. It is an established company, with owners looking to retire. They are willing to provide part-time consulting for up to one year to anyone who buys the company. $25,000,000 $8,500,000 8% 28% Year 0 Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4 Cash Flow Year 5 Cash Flow Projected Revenues at an annual growth rate Projected Expenses at 28% of Revenue…
Payback Period Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Colby Hepworth has just invested $575,000 in a book and video store. She expects to receive a cash income of $120,000 per year from the investment. Kylie Sorensen has just invested $1,600,000 in a new biomedical technology. She expects to receive the following cash flows over the next 5 years: $350,000, $490,000, $800,000, $510,000, and $290,000. Carsen Nabors invested in a project that has a payback period of 4 years. The project brings in $960,000 per year. Rahn Booth invested $1,500,000 in a project that pays him an even amount per year for 5 years. The payback period is 2.5 years. Required: 1. What is the payback period for Colby? Round your answer to two decimal places.years 2. What is the payback period for Kylie? Round your answer to one decimal place.years 3. How much did Carsen invest in the project? $ 4. How much cash does Rahn receive each year? $per year
sanja
Provide answer
A pharmaceutical company developed four investment plans. The initial investment and the corresponding annual cash flows of the four investment plans for consecutive 5 years are shown in the following Table Q1. Project Name I II III IV Initial Investment (OMR) 44000 62000 100000 109000 Annual Cash inflow (OMR) 10000 22000 27000 44000 Identify the best project and decide the ranking based on the following profitability methods. a) Average rate of return. b) Payback period. c) Net Present value with discounting rate at 8% d) Benefit to cost ratio with discounting rate at 11% e) Internal rate of return for range of suitable discounting rate please solve d and e or all
For the following table, assume a MARR of 9% per year and a useful life for each alternative of six years that equals the study period the ior from least capital investment to greatest capital investment is Do nothing A C. B.Complete the IRR analysis by selecting the preferred Do nothing vs A A vs C A vs B Capital investment -$15,000 -%$2,000 -$3,000 O aB Annual Revenues $4,000 $900 $460 Annual costs -S1,000 Ob. Do nothing -S160 $100 Morket value $6.000 -%$2,200 $3,350 Occ RR 12.7% 10.9% OdA
please write out the explanation
The finance director of a limited company is considering a number of investment projects in the leisure sector to expand the business. Name or Project Initial outlay Profit stream A £1.2m £400k at the end of each year for 4 years Loss of £1k per year for 2 years, followed by profit of £30k per year for 2 years £10k | £1.0m | £600k at the end of each year for 3 years At the end of each year (for 3 years) there is a 50% chance of a £500k profit and a 50% chance of a £100k loss £0.4m (You may assume that all profits and losses are made at the end of the year in question. You do not need to consider part years) i) Without doing any detailed calculations but giving your reasons, state which of the above projects would be expected to have the greatest IRR (internal rate of return). i) Calculate the IRR (to the nearest whole percentage) for the project you have chosen in part i) explaining how you have estimated your initial approximation. ii) Performing any calculations you need state which…
Scenario Sinking funds are used to provide money to pay off a loan in one lump sum or to accumulate money to build new factories, buy equipment, and so on. The payment needed at the end of each period to accumulate a fixed amount in a sinking fund at a specific future date is found as follows. Answer the following question and explain your steps toward the solution: A business needs $450,000 in five years. How much should be deposited each quarter in a sinking fund that earns 9% compounded quarterly to have this amount in five years?
A pharmaceutical company developed four investment plans. The initial investment and the corresponding annual cash flows of the four investment plans for consecutive 5 years are shown in the following Table Q1. Project Name I II III IV Initial Investment (OMR) 44000 62000 100000 109000 Annual Cash inflow (OMR) 10000 22000 27000 44000 Identify the best project and decide the ranking based on the following profitability methods. a) Average rate of return. b) Payback period. c) Net Present value with discounting rate at 8% d) Benefit to cost ratio with discounting rate at 11% e) Internal rate of return for range of suitable discounting rate
A company is considering a $166,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flow $10,000 $28,000 $55,000 $42,000 $111,000 (a) Compute the net present value of this investment.(b) Should the machinery be purchased?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS