Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- An electronic circuit board manufacturer is considering six mutually exclusive cost-reduction projects for its PC-board manufacturing plant. All have lives of 10 years and zero salvage value. The required investment, the estimated after-tax reduction in annual disbursements, and the gross rate of return arc given for each alternative in the following table: llte rate of return on incremental investments is given for each project as follows: Which project would you select according to the rate of return on incremental investment if it is stated that the MARR is 15%?arrow_forward6. An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. A second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The IRR of this alternative is 18.69%. Determine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your recommendation, based on this method.arrow_forwardThe conventional B/C ratio for a flood control project along the Mississippi River was calculated to be 1.3. The benefits were $500,000 per year and the maintenance costs were $200,000 per year. What was the initial cost of the project if a discount rate of 7% per year was used and the project was assumed to have a 50-year life?arrow_forward
- A proposed cost-saving device has an installed cost of $825,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $91,000, the tax rate is 23 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $139,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savingsarrow_forwardTwo roadway design are under consideration. Design 1A will cost $3 million to build and $100,000 per year to maintain. Design 1B will cost $3.5 million to build and $40,000 per year to maintain. Both designs are assumed to be permanent. Use an AW based rate of return equation to determine (a) the breakeven ROR, and (b) which design is preferred at a MARR of 10% per yeararrow_forwardThe table below shows the profit after tax and the book value of investment for three projects A, B, and C Required:Calculate the Accounting Rate of Return (ARR) of the three projects and recommend the best option based on your calculation.arrow_forward
- An individual decides to invest in one of two projects, A and B, which both require the same initial outlay of $10 000. Project A yields $11 500 in 3 years’ time whereas Project B yields, $12 100 in 4 years’ time. Calculate the internal rate of return for each project.arrow_forwardNet Present Value-Unequal Lives Project 1 requires an original investment of $65,200. The project will yield cash flows of $14,000 per year for 5 years. Project 2 has a computed net present value of $15,700 over a three-year life. Project 1 could be sold at the end of three years for a price of $65,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest 10% 0.909 0.826 0.751 0.683 Year 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 6% 10 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 2.673 3.465 4.212 4.917 5.582 6.210 0.621 0.564 0.513 0.467 0.424 0.386 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.870 1.833 1.626 2.283 2.855 6.802 7.360 0.909 1.736 2.487 3.170 3.791 4.355 4.868 12% 5.335 5.759 6.145 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 15% 5.328…arrow_forwardBlossom Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $450,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $73,500. Project B will cost $298,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $50,200. A discount rate of 9% is appropriate for both projects. Click here to view PV table. Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A Profitability index - Project A Net present value - Project B…arrow_forward
- Jonczyk Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $461,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $72,000. Project B will cost $271,000, has an expected useful life of 11 years and a salvage value of zero, and is expected to increase net annual cash flows by $45,000. A discount rate of 8% is appropriate for both projects. 1. What is the net present value $ of project A? 2. what is the profitability index for project A? 3. What is the net present value $ of project B? 4. what is the profitability index for project B?arrow_forwardanswer must be in proper format or i will give down votearrow_forwardA public project is being considered by a local government that will cost $10M at the start and SSM at the end of years 1 through 5. The project is estimated to earn $20M at the end of year 2, $30M at the end of years 3 and 4, and $20M at the end of year 5. Assuming i = 10%. What is the benefit-to-cost ratio for this project? Draw a cash flow diagram for the costs and benefits annually.arrow_forward
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