Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Xyz is considering a 5-year project. It plans to invest Kes.62,000 now and it
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- Grayson Company is considering a purchase of equipment that costs $62,000 and is expected to offer annual cash inflows of $17,000. Grayson’s minimum required rate of return is 10%. How many years must the cash flows last for the investment to be acceptable ?arrow_forwardThe company XYZ is deciding whether or not to on a new project with an initial cost of 5.5 MM$. Net cash inflows are expected to be 9 MM$ for each of the first five years of operations. In the sixth year, the abandonment cost of the project is 35 MM$. a. Develop and plot the NPV profile for the projectb. Should the project be accepted at a rate of return of 8%? Should it be accepted at a rate of return of 15%? c. What is the project GRR if the available reinvestment rate is 8%? What if the rate is 15%?arrow_forwardGrowth Enterprises believes its latest project, which will cost $80,000 to install, will generate a perpetual growing stream of cash flows. Cash flow at the end of the first year will be $6,000, and cash flows in future years are expected to grow indefinitely at an annual rate of 5%.. a. If the discount rate for this project is 10%, what is the project NPV? Note: Do not round intermediate calculations. Answer is complete and correct. NPV $ 40,000 b. What is the project IRR? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. IRR Answer is complete but not entirely correct. 0.00%arrow_forward
- . The initial cost of the project is 20,000 EUR. You assume that you will be able to generate cash inflows (for instance through subscriptions) from this project in the years 1-3 of 10,000 EUR each. The target interest rate is 10% per annum.. Write the formula and calculate NPV. Justify the result.arrow_forwardA project has annual cash flows of $8,000 for the next 10 years and then $9,500 each year for the following 10 years. The IRR of this 20-year project is 11.51%. If the firm's WACC is 10%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. Aarrow_forwardNPV and IRR Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $17,950, and the project will yield cash inflows of $3,000 per year for 9 years. The firm has a cost of capital of 8%. a. Determine the net present value (NPV) for the project. b. Determine the internal rate of return (IRR) for the project. c. Would you recommend that the firm accept or reject the project?arrow_forward
- A project is expected to generate the following cash flows: $1 million in one year, $3.7 million in two years, $4 million in three years and $4,3 million in four years. The cash flow is then expected to remain constant (54 3 million per year) in perpetuity. How much are you willing to invest in the project today if you want the project to have an internal Rate of Return (IRR) of 15% ?arrow_forwardCapstone Investments is considering a project that will produce cash inflows of $11,000 in 1 year, $22,000 in 2 years, and $33,000 in 3 years. The company assigns the project a discount rate of 6%? What is the present value of these cash inflows?arrow_forwardThe firm considers a project which requires an immediate investment of $100, and generates cashflows in the amount of $70 at the end of each of the next three years. Hurdle rate = 16%. What is the project’s NPV?arrow_forward
- Rotterdam Corp. (RC) is considering a new two-year project. RC estimates that there is a 25% probability that cash flows in two years will be €250,000, a 30% probability that the cash flows will only be €200,000 and a 45% probability the cash flows will be €350,000. The cost of the project is €220,000. The project’s cost of capital is 15% and the risk-free rate is 5%. What is the NPV of the project if financed with 100% equity? If the €220,000 cost of the project is financed with all equity, then what is the rate of return on the unlevered equity? If the project is financed with 30% debt (at the risk-free rate), what is the expected return on the levered equity?arrow_forwardA project has annual cash flows of $3,500 for the next 10 years and then $11,000 each year for the following 10 years. The IRR of this 20-year project is 12.93%. If the firm's WACC is 11%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $ ___arrow_forwardMidlife 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…arrow_forward
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