a. You are planning an investment in a project with an initial cost of $ 80,000....

a. You are planning an investment in a project with an initial cost of $ 80,000. That project is expected to produce an NCF of $ 20,000 annually for the next six years. your expected rate of return is 10%. Compute for that project the following: payback period, net present value, internal rate of return, and profitability index.

b. A company is considering two independent projects between them. The initial cost for project A is $ 50,000 and for project B it is $ 70,000. Project A offers an NCF of $ 12,000 annually for the next six years. Project B offers an NCF of $ 13,000 annually for the next six years. The expected return by the company is 12%. For said company compute the following: net present value, internal rate of return, and profitability index. Also indicate if the company should accept the projects and if so, which one should accept.

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A firm is planning an investment in a project. The initial investment is 250,000. The project...

A firm is planning an investment in a project. The initial investment is 250,000. The project returns $100,000 cash at the end of one year. At the end of second year the project returns cash of amount $F. These are only cash flows from the project. If the IRR for the project is 10%, what is the amount $F?

A company is planning a four-year project, with an initial cost of $1.67 million. This investment...

A company is planning a four-year project, with an initial cost of $1.67 million. This investment cost is amortized to zero over four years on a straight-line basis. However, the asset could be disposed of for $435,000 in four years. The project requires $198,000 in working capital initially and is fully recoverable after the project is completed. The project generates $1,850,000 in sales and $1,038,000 in costs each year. If the tax rate is 21% and the required return rate...

A company is considering a project with an initial investment of $80,000. The annual inflow from...

A company is considering a project with an initial investment of $80,000. The annual inflow from the project is $10,000 for ten years. The salvage value for the project is $12,000 in year ten. The cost of capital is 12%. Should the company make this investment?

A company is planning to start an investment, which will cost an initial investment of $...

A company is planning to start an investment, which will cost an initial investment of $ 15 million. The management has already forecasted all future cash flows from this project: $4 million each year, for the next 6 years. Then the investment (machinery etc) will be sold for a price of $3 million. Calculate the MIRR, knowing that recovered funds will be reinvested at a rate of 12% annual nominal, compounded annually. For the external financing rate, the company uses...

A company is planning to start an investment, which will cost an initial investment of $...

Cordia Corporation is planning a 15 year project with an initial investment of $2,500,000. The project...

Cordia Corporation is planning a 15 year project with an initial investment of $2,500,000. The project will have $400,000 cash inflows per year in years 1-5 ; $200,000 cash inflows in years 6-10, and $40,000 cash inflows in years 11-15. a) Determine this project's intemal rate of return. b) If Cordia's opportunity cost of capital is 8%, should they accept or reject this project? c) Explain your reason for your decision in part (b).

Project A: This project requires an initial investment of $20,000,000 in equipment which will cost an...

Project A: This project requires an initial investment of $20,000,000 in equipment which will cost an additional $3,000,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase raw goods inventory by $5,000,000, but it will also see an increase in accounts payable for $1,500,000. With this investment, the project will last 6 years at which time the market value for the equipment will...

An investment project requires an initial cost of $100. The project will provide $ 25 in...

An investment project requires an initial cost of $100. The project will provide $ 25 in the first year and $110 in the second year. What is the NPV of the project if the discount rate is 10%? $ 1.13 $ 13.64 $ 35 $ 3.35

1. Suppose you have an investment that costs $80,000 at the beginning of the project, and...

1. Suppose you have an investment that costs $80,000 at the beginning of the project, and it generates $30,000 a year for four years in positive cash flows. The cost of capital is 12%. The IRR of the project is 18.45% and the NPV is about $11,120. The IRR model assumes that at the end of the first year you can invest the $30,000 at ________. a. 12.00% b. a rate greater than the IRR c. rate less than the cost...

Husky Corporation is considering an investment project in Canada. The project has an initial cost of...

Husky Corporation is considering an investment project in Canada. The project has an initial cost of CAD602,000 and is expected to produce cash inflows of CAD220,000 a year for four years. The project will be worthless after four years. The risk-free rate in the United States is 2 percent and the risk-free rate in Canada is 2.4 percent. The current spot rate is CAD1 = $.742. Husky's required return on dollar investments of this type is 12 percent. What is...

Subjects