Question

In: Finance

The average annual rate of return for your start up company for the past several years...

The average annual rate of return for your start up company for the past several years has been 20% and has made you rich. To maintain this growth, you are evaluating two projects: the first to expand the production capacity and the second is open a new office. You have developed the following table to compare the two:

Comparison of projects

   Year       Plant Expansion       New Office       Initial Outlay    3,500,000 500,000 1 1,500,000 250,000 2 2,000,000 350,000 3 2,500,000 375,000 4 2,750,000 425,000


a, What is the total cash flow of each project?

b. What is the traditional payback period of each and which would be selected based on this value?

c. What is the discounted payback period of each and which would be selected based on this value?

d. What is the NPV and which would be selected based on this rate?

e. What is the IRR of each project and which would be selected on this rate?

f. What is the PI of each project of each project and which would be selected on this rate?

g. You can only afford to undertake one project. Which one and why

Solutions

Expert Solution

b. based on Traditional payback New Office is recommended as it has lesser Payback period

c. based on discounted payback New Office is recommended as it has lesser discounted payback period

d. based on NPV Plant Expansion is recommended as it has higher NPV

e. based on IRR New Office is recommended as it has higher IRR

f. based on PI New Office is recommended as it has higher PI

g. if you can only afford one project i would suggest to go with plant expansion as it result higher cash flow. even though it is not at par with new office proposal in various parameters. the business will get higher cash inflow in plant expansion.

jeff jeffy answered 1 month ago
Next > < Previous

Related Solutions

Your broker correctly tells you that your portfolio's average annual rate of return for the past...
Your broker correctly tells you that your portfolio's average annual rate of return for the past two years is 10.0%. You know the portfolio value today of $34,300 is $1,700 less than when you started the account two years ago. What was the portfolio's value one year ago? a. $23,476       b. 828,406       c. $31,247       d. $25,824       e. $21,342 2. A savings account was established with $36,000 exactly 7 years ago. The account earns 4.3% compounded annually. Otherwise, the account has...
Your broker correctly tells you that your portfolio's average annual rate of return for the past...
Your broker correctly tells you that your portfolio's average annual rate of return for the past two years is 10.0%. You know the portfolio value today of $34,300 is $1,700 less than when you started the account two years ago. What was the portfolio's value one year ago? a. $23,476       b. 828,406       c. $31,247       d. $25,824       e. $21,342 MUST USE TIME VALUE OF MONEY FORMULAS OR "BA II PLUS CALCULATOR" IN ORDER TO SOLVE / EXCEL NOT ALLOWED
Your broker correctly tells you that your portfolio's average annual rate of return for the past...
Your broker correctly tells you that your portfolio's average annual rate of return for the past two years is 10.0%. You know the portfolio value today of $34,300 is $1,700 less than when you started the account two years ago. What was the portfolio's value one year ago? a. $23,476       b. 828,406       c. $31,247       d. $25,824       e. $21,342
Smyth Industries operated as a monopolist for the past several years, earning annual profits amounting to...
Smyth Industries operated as a monopolist for the past several years, earning annual profits amounting to $68 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $11 million annually. The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of...
Historical rate of return is based on the past and expected rate of return is based...
Historical rate of return is based on the past and expected rate of return is based future probability. Select one a. True b. False
Calculate annual arithmetic rate of return and annual geometric rate of return of stock A and...
Calculate annual arithmetic rate of return and annual geometric rate of return of stock A and B. Consider the data in table below, which show the movements in price for two stocks over two successive holding periods. Both stocks have a beginning price of $10. Stock A rises to $40 in period 1 and then declines to $30 in period 2. Stock B falls to $8 in period 1 and then rises to $25 in period 2.
The average work week for engineers in a start-up company is believed to be about 60...
The average work week for engineers in a start-up company is believed to be about 60 hours. A newly hired engineer hopes that its shorter. She asks 10 engineering friends in start-ups for the lengths of their average work weeks. The average is 75 hours, with a standard deviation of 7.15 hours. Based on the data, test her claim that the average work week is shorter than 60 hours. Use α = 0.05
The average work week for engineers in a start-up company is believed to be about 60...
The average work week for engineers in a start-up company is believed to be about 60 hours. A newly hired engineer hopes that it's shorter. She asks 10 engineering friends in start-ups for the lengths of their average work weeks. Based on the results that follow, should she count on the average work week to be shorter than 60 hours? Conduct a hypothesis test at the 5% level. Data (length of average work week): 70; 45; 55; 60; 65; 60;...
Below are the reported profits and losses of Amherst Company for the past several years along...
Below are the reported profits and losses of Amherst Company for the past several years along with their tax rates on income reported.                                 Income                                                 Tax rate 2012                       $100,000                                              30% 2013                       $ 20,000                                               30% 2014                       $100,000                                              40% 2015                       $(350,000)                                           40% 2016                       $75,000 30% 2017                       unknown 30% Amherst elects to use both carry back and carry forward procedures with no valuation allowance and strongly anticipates future profits to recover losses. Record the tax effect of the above in 2015.                                                                                                                                                 Dr....
The mean annual inflation rate in the United States over the past 98 years is 3.37%...
The mean annual inflation rate in the United States over the past 98 years is 3.37% and has a standard deviation of approximately 5%. In 2018, the inflation rate was below 1.9%. If the annual inflation rate is normally distributed, what is the probability that inflation rate will be below 1.9% in 2019?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT