Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 5, Problem 1MC
Construct a spreadsheet to calculate the payback period,
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QUESTION 1
The accounts manager of VM Gym & Sports has been asked to evaluate a potential capital
investment of a set of rowing machines. The following data is available for cach project:
Machine 1
Machine 2
RM
RM
Cost (immediate outlay)
500,000
245,000
Expected annual profits (losses)
Year 1
I.
80,000
84,000
Year 2
90,000
136,000
Year 3
116,000
126,000
Year 4
146,000
150,000
Annual running costs
30,000
24,000
Annual service costs
36,000
20,000
Estimated residual value equipment
40,000
30,000
*The total annial running and service costs for Machine 2 in the first year is RM 36,000
The committee has estimated a cost of capital of 30% and employs the straight-line method
of depreciation for all fixed assets when calculating net profit. The following discount factors
are given:
Year
Cost of capital
10%
50%
0.909
0.667
2.
0.826
0.444
3.
0.751
0.296
4.
0.683
0.198
Chapter 5 Solutions
Corporate Finance
Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - Prob. 5CQCh. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Prob. 1QAPCh. 5 - Prob. 2QAPCh. 5 - Prob. 3QAPCh. 5 - Prob. 4QAPCh. 5 - Prob. 5QAPCh. 5 - Prob. 6QAPCh. 5 - Prob. 7QAPCh. 5 - Prob. 8QAPCh. 5 - Prob. 9QAPCh. 5 - Prob. 10QAPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Prob. 12QAPCh. 5 - Prob. 13QAPCh. 5 - Prob. 14QAPCh. 5 - Prob. 15QAPCh. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 17QAPCh. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QAPCh. 5 - Prob. 20QAPCh. 5 - MIRR Suppose the company in the previous problem...Ch. 5 - Prob. 22QAPCh. 5 - Prob. 23QAPCh. 5 - Prob. 24QAPCh. 5 - Prob. 25QAPCh. 5 - Prob. 26QAPCh. 5 - Prob. 27QAPCh. 5 - Prob. 28QAPCh. 5 - Prob. 29QAPCh. 5 - Prob. 30QAPCh. 5 - Construct a spreadsheet to calculate the payback...Ch. 5 - Based on your analysis, should the company open...Ch. 5 - Prob. 3MC
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- (a) Calculate the payback period for each project. (b) Calculate the net present value (NPV) for each project. (c) Calculate the profitability index of each project. (d) Explain to the company which project should be implemented. Support your answer.arrow_forwardUse the information provided to answer the questions Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places).Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). Use your answers from previous question to recommend the project that should be chosen. Motivateyour choice.arrow_forwardThe cost of capital represents a. the capital outlay required in a project. b. the initial investment of a project. c. the IRR of the investment. d. the minimum ROI of the investment.arrow_forward
- To calculate net present value of a project with normal cash flows, find the present value of the expected cash flows, and subtract A) retained earnings. B) the cost of the investment. C) the factor loading. D) the payback period.arrow_forwardCalculate : Internal rate of return for Project A. (Use interpolation technique)arrow_forward(A) compute the profitability index for each project. (B) based on the profitability index, which project should the company select?arrow_forward
- Please show how to calculate the terminal cash flow of the project using the images attached.arrow_forwardCan you use the images attached to calculate the initial cash flow of the project. PLease explain how it is calculated as well.arrow_forwardCalculate the Accrual accounting rate of return based on net initial investment (Assume straight-line depreciation.Use the average annual savings in cash operating costs when computing the numerator of the accrualaccounting rate of return.) for the special-purpose bottling machine.arrow_forward
- Using attached, Accounting Rate of Return on average investment of Project A (expressed to twodecimal places).arrow_forwardWhich approach to investment analysis is "best" in terms of accounting for both the timing and amount of revenue streams from a potential investment? A. the payback period B. the simple rate of return C. the net present value D. the internal rate of returnarrow_forwardHow to determine the initial investment if I have the flows, of the npv and the irrarrow_forward
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