Question

In: Finance

PRESENT VALUE ANALYSIS TO COMPARE ALTERNATIVES - (a) Your agency is competing with another agency for...

PRESENT VALUE ANALYSIS TO COMPARE ALTERNATIVES -

(a) Your agency is competing with another agency for $10 million in government money. Only one of you will get the $10 million. Your agency will use the $10 million for college scholarships that will increase the knowledge and earning power of 100 people in about four years when they finish college. The other agency will use the $10 million to study how earthquakes affect home prices. Their study will take ten years but it will create twice as much value as your agency's project at the end of that time. The government uses a 3 percent discount rate for both projects. Who will get the $10 million? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM IN EXCEL).

NET PRESENT VALUE OF AN ANNUITY -

(b) Would you suggest your firm invest in a new machine that costs $450,000 and generates cash flows of $60,000 per year at the end of the next ten years if the appropriate discount rate for the machine is 8 percent? What is the present value of the annuity generated by this machine's cash flows? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM IN EXCEL).

(c) Would you suggest your firm invest in a new machine that costs $580,000 and generates cash flows of $75,000 per year at the end of each of the next ten years if the appropraite discount rate for the machine is 10 percent? What is the present value of the annuity generated by this machine's cash flows? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM IN EXCEL).

INTERNAL RATE OF RETURN -

(d) Calculate the internal rate of return for a project that has upfront cost of $6 million and cash flows of $2 million per year for each of the next four years. Suppose the risk adjusted borrowing cost of this project is 15 percent. Using IRR (Internal Rate of Return) analysis, would you undertake this project? Confirm your answer by calculating the project's NPV (Net Present Value). (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM IN EXCEL).

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Your agency is competing with another agency for $15 million in government money. Only one of...
Your agency is competing with another agency for $15 million in government money. Only one of you will get the $15 million. Your agency will use the $15 million for vocational training that will increase the skills and earning power of 100 people in about two years when they finish the program. The other agency will use the $15 million to study how floods affect homeowners’ insurance costs. Their study will take four years but it will create twice as...
Compare the alternatives C and D on the basis of a present worth analysis using an...
Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 7% per year and using a study period of 10 years. What would be the resulted present worth of the alternative to be selected. Alternative C D First Cost $-5684 $-4060 AOC, per Year $-1015 $-812 Annual Revenue, per Year $2436 $1827 Salvage Value $812 $609 Life, Years 6 4
Compare the alternatives C and D on the basis of a present worth analysis using an...
Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 8% per year and a study period of 10 years. Alternative C D First Cost $-36,000 $-29,000 AOC, per Year $-10,000 $-5,500 Annual Increase in Operating Cost, per Year $-800 $-1,000 Salvage Value $7,000 $800 Life, Years 10 5 The present worth of alternative C is $ and that of alternative D is $ . offers the lower present worth analysis.
Compare the alternatives C and D on the basis of a present worth analysis using an...
Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 15% per year and a study period of 10 years. Alternative C D First Cost $-50,000 $-29,000 AOC, per Year $-7,000 $-4,500 Annual Increase in Operating Cost, per Year $-700 $-1,000 Salvage Value $11,000 $700 Life, Years 10 5 The present worth of alternative C is $ and that of alternative D is $ .
Compare the alternatives C and D on the basis of a present worth analysis using an...
Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 8% per year and a study period of 10 years. Which alternative should be selected and what is the PW of the selected alternative? Show steps for finding both alternatives. No excel. Alternative C D First cost, $ -40,000 -32,000 Annual operating cost/year -7,000 -3,000 Annual increase in operating cost per year -1000 0 Salvage value 9000 500 Life, Years 10...
Basic Net Present Value Analysis, Competing Projects Kildare Medical Center, a for-profit hospital, has three investment...
Basic Net Present Value Analysis, Competing Projects Kildare Medical Center, a for-profit hospital, has three investment opportunities: (1) adding a wing for in-patient treatment of substance abuse, (2) adding a pathology laboratory, and (3) expanding the outpatient surgery wing. The initial investments and the net present value for the three alternatives are as follows: Substance Abuse Laboratory Outpatient Surgery Investment $1,500,000 $500,000 $1,000,000 NPV 201,500 140,000 135,000 Although the hospital would like to invest in all three alternatives, only $1.5...
Compare two alternatives, A and B on the basis of a present worth evaluation using i=8%...
Compare two alternatives, A and B on the basis of a present worth evaluation using i=8% per year and study period of 8 years. Which alternative should be selected based on PW calculation and what is the PW value of the selected alternative? Show work for both alternatives. No excel. Alternative A B First cost, $ -15,000 -28,000 Annual operating cost -6,000 -9,000 Overhaul in year 4 - -2,000 Salvage value 3,000 5,000 Life, Years 4 8
Principles of Engineering Economy 1. If I considered the value of all alternatives in the present,...
Principles of Engineering Economy 1. If I considered the value of all alternatives in the present, which of the seven basic principles would I be applying? 2. Which principle is applied when one chooses dollars for alternative comparison? 3. The concept of feedback is embodied in which principle?
(Present value of an uneven stream of payments ) You are given three investment alternatives to...
(Present value of an uneven stream of payments ) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: Investment End of Year    A B C 1 $ 3,000 $ 3,000 $ 4,000 2    4,000 3,000 4,000 3    5,000 3,000 (4,000) 4    (6,000) 3,000 (4,000) 5    6,000 6,000    14,000 What is the present value of each of these three investments if the appropriate discount rate is 8 percent? 1. What is...
Net Present Value Method, A method of analysis of proposed capital investments that uses present value...
Net Present Value Method, A method of analysis of proposed capital investments that uses present value concepts to compute the rate of return from the net cash flows expected from the investment.Internal Rate of Return Method, and Analysis The management of Quest Media Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Radio Station TV Station 1 $360,000 $760,000 2 360,000 760,000 3 360,000 760,000 4 360,000 760,000 Present Value...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT