None The Seattle Corporation has beenpresented with an investmentopportunity which will yield end-of-year cash flows of $19,000 peryear in Years 1 through 4, and $23,000 per year in Years 5 through9. This investment will cost the firm$63,000 today, and the firm's cost ofcapital is 9.2 percent. What is theNPV for this investment? Question 6options: $49,874 $52,174 $54,674$56,274 $57,774 $60,874

Answered: Image /qna-images/answer/38e5c729-1bfd-452d-9dc3-ec204b61d3e2.jpg

Answered: The Seattle Corporation has been…

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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Note: Question 12, 13, 14 and 15 are based on the same two projects A and B. Your firm has estimated the following cash flows for two mutually exclusive capital investment projects. Firm uses 4.9 years as the cutoff for the discounted payback period. The firm's required rate of return is 11%. What is the IRR of project B? Project A Cash Flow Year Project B Cash Flow -$80,000 -$180,000 1 $23,000 $53,000 2 $23,000 $53,000 3 $23,000 $47,000 4 $20,000 $47,000 $20,000 $40,000 6 $20,000 $27,000 O 16.21% 10.55% 13.98% O 13.65% 12.22%
Consider a project with a net investment of $40,000 and the following net cash flows: Annual Cash Flow Year 1 $25,000 Year 2 $36,000 Year 3 $8,000 If the company's cost of capital is 5%, what would be the net present value of the project? a. $19,560 b. $19,800 c. $20,900 d. $23,373 Between equity and debt capital a. Debt is safer than equity b. No option is correct c. Both debt and equity are equally risky d. Equity is riskier than debt
A risky $500,000 investment is expected to generate the following cash flows: Year 1 2 3 $250,000 $266,667 $285,715 The probability of receiving each cash flows is 80, 75 and 70 percent, respectively. If the firm's cost of capital is 10 percent, should the investment be made?
Note: Question 12, 13, 14 and 15 are based on the same two projects A and B. Your firm has estimated the following cash flows for two mutually exclusive capital investment projects. Firm uses 4.9 years as the cutoff for the discounted payback period. The firm's required rate of return is 11%. What is the Pl of project B? Project A Cash Flow Year Project B Cash Flow -$80,000 -$180,000 1 $23,000 $53,000 $23,000 $53,000 3 $23,000 $47,000 4 $20,000 $47,000 5 $20,000 $40,000 6 $20,000 $27,000 1.21 2.21 1.36 1.08 1.15
Problem-11: The Corporation is considering a capital investment of Tk. 12,00,000 in a project, which is expected to yield the following cash flows: Year Cash inflow 1 2 3 4 to 6 7 150000 180000 160000 140000 190000 If the required rate of return is 12%, determine (i) NPV of the project and (ii) IRR of the project. Is the proposal an acceptable one?
4. Capital expenditure of a new investment project is $ 120,000,000; the expected annualnet cash flows generated from the investment are given below. Supposethat the company's cost of capital is 10%, calculate and comment on the accounting rate of return, internal rate of return, and discounted payback period of the project. Cash flows($000) DE (10%) 40,000 42,000 50,000 Years 1. 0.909 2. 0.826 0.751 52,000 0.683 55,000 0.621 SV 60,000 0.565
Consider the two mutually exclusive investment projects A and B: Project A -2,000 2,000 Project B -5,000 Cash Flows Year 0 Year 1 Year 2 3,000 10,000 (a) Verify that (yearly) Internal Rate of Return for Projects A and B are approximately 82.2% and 41.4%. (b) Suppose the cost of capital (the interest rate that you can borrow or invest) is 10% p.a. for both projects. Which project would you choose? What is the implication for decision rule in project appraisal by using Internal Rate of Return method?
Assume that the company you chose in part a) has been researching the prospects for a range of new investmentopportunities. The cash flow details of two promising projects (which are mutually exclusive) are given below:Year Projected Cash Flows (£m) A B0 -85 -901 10 402 20 353 25 74 65 40Assume that the company’s cost of capital is currently at 10.25 per cent.Assume that all cash flows arise at year ends and straight-line depreciation is used over the life of the project with zeroscrap value. Ignore taxation and inflation.1. Calculate the Payback Period (PBP), Accounting Rate of Return (ARR) and the Net Present Value (NPV) ofthe project. Evaluate the results of these calculations and recommend with reasons which project should beadopted.
Two mutually exclusive investment opportunities require an initial investment of $6 million. Investment A pays $1.7 million per year in perpetuity, while investment B pays $1.2 million in the first year, with cash flows increasing by 3% per year after that. At what cost of capital would an investor regard both opportunities as being equivalent? A. 5% B. 10% C. 3% D .11%
Question: You are a financial analyst for the Hitler Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y 0 ($10,000) ($10,000) 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Required: Calculate each project’s payback period, discounted payback period, net present value (NPV), profitability index and internal rate of return (IRR). Which project or projects should be accepted if they are independent? Which project should be accepted if they are mutually exclusive?
4. Capital expenditure of a new investment project is $ 120,000,000; the expected annual net cash flows generated from the investment are given below. Suppose that the company's cost of capital is 10%, calculate and comment on the accounting rate of return, internal rate of return, and discounted payback period of the project. Years Cash flows($000) DF (10%) 1 40,000 0.909 2 42,000 0.826 3 50,000 0.751 4 52,000 0.683 5 55,000 0.621 SV 60,000 0.565
4. Your firm is evaluating a project that should generate revenue of P4,600 in year 1, P5,200 in year two, P5,900 in year three, and P5,700 in year four. The firm receives each cash flow at the end of each year. If your firm's required return is 12%, what is the future value of these cash flows at the end of year four? a.P16,074.51b.P22,583.53c.P25,293.55d.P28,328.77

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