Question
In: Finance
You are analyzing a project with a thirty-year lifetime, with the following characteristics: • The project...
You are analyzing a project with a thirty-year lifetime, with the following characteristics: • The project will require an initial investment of $20 million and additional investments of $5 million in year 10 and $5 million in year 20. • The project will generate earnings before interest and taxes of $3 million each year. (The tax rate is 40%.) • The depreciation will amount to $500,000 each year, and the salvage value of the equipment will be equal to the remaining book value at the end of year 30. • The cost of capital is 12.5%.
a. Estimate the NPV of this project.
b. Estimate the IRR on this project. What might be some of the problems in estimating the IRR for this project?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You are analyzing a project with the following cash flows: Year 0: -240,000 Year 1: +...
You are analyzing a project with the following cash flows:
Year 0: -240,000
Year 1: + 10,000
Year 2: + 55,000
Year 3: +100,000
Year 4: +380,000
What is the NPV for this project, using a 15% discount rate?
Multiple Choice
The Project has an NPV of $69,281
The Project has an NPV of $58,445
The Project has an NPV of $70,617
The Project has an NPV of $93,301
What is the IRR for this project?
Multiple Choice
The Project...
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...
You are analyzing two proposed capital investments with the
following cash flows:
Year
Project
X
Project
Y
0
- $20,000
- $20,000
1
13,730
6,470
2
6,060
6,470
3
6,460
6,470
4
2,120
6,470
The cost of capital for both projects is 10 percent.
Calculate the profitability index (PI) for each project.
(Do not round discount factors. Round intermediate
calculations to 2 decimal places, e.g. 15.25 and final answer to 4
decimal places, e.g. 1.2527.)
The PI for project X...
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...
You are analyzing two proposed capital investments with the
following cash flows:
Year
Project X
Project Y
0
- $20,000
- $20,000
1
13,530
6,370
2
5,960
6,370
3
6,460
6,370
4
1,920
6,370
The cost of capital for both projects is 10 percent.
Calculate the profitability index (PI) for each project.
(Do not round discount factors. Round intermediate
calculations to 2 decimal places, e.g. 15.25 and final answer to 4
decimal places, e.g. 1.2527.)
The PI for project X...
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...
You are analyzing two proposed capital investments with the
following cash flows: Year Project X Project Y 0 - $20,000 -
$20,000 1 12,530 6,570 2 6,360 6,570 3 6,160 6,570 4 2,020 6,570
The cost of capital for both projects is 10 percent. Calculate the
profitability index (PI) for each project. (Do not round discount
factors. Round intermediate calculations to 2 decimal places, e.g.
15.25 and final answer to 4 decimal places, e.g. 1.2527.) The PI
for project X...
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...
You are analyzing two proposed capital investments with the
following cash flows:
Year
Project X
Project Y
0
-$20,000
-$20,000
1
13,630
7,720
2
5,860
7,720
3
6,160
7,720
4
2,020
7,720
The cost of capital for both projects is 10 percent.
Calculate the profitability index (PI) for each project. (Do not
round discount factors. Round intermediate calculations to 2
decimal places, e.g. 15.25 and final answer to 4 decimal places,
e.g. 1.2527.)
1) What is the PI for project...
You are analyzing a project with 5-year life. The project requires a capital investment of $10000...
You are analyzing a project with 5-year life. The project
requires a capital investment of $10000 now, and it will generate
uniform annual revenue of $6000 at the end of each year. Further,
the project will have a salvage value of $2500 at the end of the
fifth year and it will require $3000 each year for the operation.
What is the net value of the project using year 1 as the basis,
considering a 10% annual interest rate._________(round your...
Given a project with the following characteristics, answer the following questions: You are the project manager...
Given a project with the following characteristics, answer the
following questions:
You are the project manager of a project to upgrade the
generators at cell phone towers.
Your project is scheduled to last for 12 months.
It is the beginning of month 4.
Your crews are to upgrade 8 cell phone towers per month for 12
months.
Each generator is planned to cost $40,000 which includes equipment,
labor, and fueling costs.
You have upgraded 30 cell phone towers and your...
you are analyzing a project and have this data : year : cash flow 0. :...
you are analyzing a project and have this data :
year : cash flow
0. : -40,000
1 : 18,675
2 : 23,900
3. : 21,750
required rate of return = 13 % target payback = 2.0 years
point:1+ 1.5 +1.5 + 2
compute following :
a) pay back period
b) discounted pay back period
c) NPV
D) IRR OF THIS PROJECT
E) ACCEPT OR REJECT PROJECT
You are analyzing a project and have prepared the following data: &n
You are analyzing a project and have prepared the following
data:
Year
Cash flow
0
-$169,000
1
$ 46,200
2
$ 87,300
3
$ 41,000
4
$ 39,000
Required payback period 2.5
years
Required
AAR
7.25 percent
Required
return
8.50 percent
C-1 What is the payback period? Should you accept the
project?
C-2 What is the profitability index of...
You are analyzing the following two projects and have developed the following information. Project A |...
You are analyzing the following two projects and have developed
the following information.
Project A | Project B
Year | Cash flow | Cash flow
0 | -$50,000 | -$50,000
1 | $31,000 | $42,000
2 | $26,000 | $21,000
3 | $27,000 | $18,000
5. What is the crossover rate of the two
projects?
6. Project A and B are mutually exclusive.
Which project(s) should be chosen if the required return is 8%?
Why?
7. Project A and B...
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