Concept explainers
a)
To determine: The NPV of the project for 5 years at an interest rate of 5%.
Introduction:
The
b)
To determine: The NPV of the project for 5 years at a rate of 10%.
Introduction:
The Net Present Value (NPV) is the distinction between the present value of cash inflow and the present value of cash outflow for a specified period of time. NPV is used to analyse the profits of a particular investment or project.
c)
To determine: The profitability of the project for 5 years.
Introduction:
The Net Present Value (NPV) is distinction between the present value of cash inflow and the present value of cash outflow for a specified period of time. NPV is used to analyse the profits of a particular investment or project.
Want to see the full answer?
Check out a sample textbook solutionChapter 5 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
- Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?arrow_forwardThe property is current selling for $400,000. You have forecasted, at the end of the fifth year we will assume the property will (or at least could) be sold for $500,000. If the required rate of return on projects of similar risk is 15%. ⦁ What is the net present value (NPV) of this investment project and should it be purchased? ⦁ What is the Internal Rate of Return offered by the project?arrow_forwardConsider a project with free cash flow in one year of $139,138 or $187,005, with either outcome being equally likely. The initial investment required for the project is $110,000, and the project's cost of capital is 23%. The risk-free interest rate is 7%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way that is, what is the initial market value of the unlevered equity? c. Suppose the initial $110,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, and what is its initial value according to M&M? a. What is the NPV of this project? The NPV is $ 22578. (Round to the nearest dollar.) b. Suppose that to raise the funds for the initial investment, the project is sold to…arrow_forward
- (Payback period, net present value, profitability index, and internal rate of return calculations) You are considering a project with an initial cash outlay of $90,000 and expected cash flows of $24,300 at the end of each year for six years. The discount rate for this project is 10.6 percent. a. What are the project's payback and discounted payback periods? b. What is the project's NPV? c. What is the project's PI? d. What is the project's IRR? a. The payback period of the project is years. (Round to two decimal places.)arrow_forwardYou are considering a project with an initial cash outlay of $100,000 and expected free cash flows of $25,000 at the end of each year for 6 years. The required rate of return for this project is 10 percent. What is the project’s payback period? What is the project’s NPV ? What is the project’s PI ? What is the project’s IRR ?arrow_forward(Payback period, net present value, profitability index, and internal rate of return calculations). You are considering a project with an initial cash outlay of$80,000 and expected free cash flows of$20,000 at the end of each year for six years. The required rate of return for this project is 10 percent. What are the project's payback and discounted payback periods? What is the project's NPV? What is the project's PI?arrow_forward
- Consider a project that has an initial cost of $100 million. The project has a payback period of 2 years. The required rate of return is 10%. What is the best case NPV? A) $0 B) $100 million C) -$100 million D) $50 million E) unlimitedarrow_forward(Payback period, NPV, PI, and IRR calculations) You are considering a project with an initial cash outlay of $85,000 and expected free cash flows of $20,000 at the end of each year for 7 years. The required rate of return for this project is 9 percent. a. What is the project's payback period? b. What is the project's NPV? c. What is the project's PI? d. What is the project's IRR?arrow_forward(Use Excel) PT BCG is considering a project with an initial cash outlay of $100,000 and an expected cash flow of $25,000 each year for six years.year. The discount rate for this project is 10 percent.a) What is the payback and discounted payback period?b) What is the NPV of the project?c) What is the IRR of the project?arrow_forward
- (Paybackperiod, NPV, PI, and IRR calculations) You are considering a project with an initial cash outlay of $80,000 and expected free cash flows of $26,000 at the end of each year for 6 years. The required rate of return for this project is 7 percent. a. What is the project's payback period? b. What is the project's NPV? c. What is the project's PI? d. What is the project's IRR?arrow_forwardProject K has a cost of $52,125, its expected net cash inflows are $22,000 per year for 6 years, and its cost of capital is 10 percent. (Hint: Begin by constructing a time line.) What is the project’s payback period (to the closest year)? What is the project’s discounted payback period? What is the project’s NPV? What is the project’s IRR? What is the project’s MIRR?arrow_forwardA 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_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning