The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately)....

The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately). The impact on cottage owners will involve a loss of $50,000 at the end of each year for the first four years (because of the construction activities affecting property values) but cottage owners will benefit by $55,000 per year in perpetuity from the end of year 5 onwards. The benefits from recreational fishing will not start until the end of year 5 and will be $35,000 per year in perpetuity. Development, stocking and management costs of the recreational fishery will start at the beginning of year 3 and continue forever. These costs are $10,000 per year

The province is considering a water resource development that will enhance recreational fishing and recreational cottage values (property values).
1. a) Calculate the net present value using a 5% discount rate. Interpret the result. (15 points)
2. b) Calculate the gross benefit cost ratio using a discount rate of 5%. Interpret the result. (5 points)
3. c) Which value best approximates the internal rate of return: 4 %, 5%, 6%, 7%, 8%, or 9%? (Note – you are not being asked to calculate the internal rate of return!) (5 points)

Expert Solution

jeff jeffy answered 1 year ago

o The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e.,...

o The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately). The impact on cottage owners will involve a loss of $50,000 at the end of each year for the first four years (because of the construction activities affecting property values) but cottage owners will benefit by $55,000 per year in perpetuity from the end of year 5 onwards. The benefits from recreational fishing will not start until the end of year 5 and...

Create a 5-year capital budget for the project below assuming the following. 1.$500,000 initial outlay for...

Create a 5-year capital budget for the project below assuming the following. 1.$500,000 initial outlay for purchase of new machine for a 5-year contract the company was awarded from a customer. 2.The company will have to rent new space for $50,000/year to put machine in. 3.A one-time, year 1 cost to set up the machine and get it running will be $200,000. 4.The machine is expected to generate revenue beginning in year 2. The machine will generate around $150,000 in...

A new factory at Arcata requires an initial outlay of $3.58 million to be paid immediately....

A new factory at Arcata requires an initial outlay of $3.58 million to be paid immediately. The factory will last for eight additional years, after which it can be sold for a salvage value of $2,440,000. Sales will be $800,000 during the first year of operation and will grow at a rate of 9 percent a year after that. Variable costs will be 30 percent of sales and fixed costs will be $150,000 and grow at a rate of 5%...

1. project initial cost (incurred at beginning of year 1) Project life Salvage value Positive annual...

1. project initial cost (incurred at beginning of year 1) Project life Salvage value Positive annual cash flow (received at the end of each year) A $200000 16 years $0 $28000 B $56000 14 years $0 $9783 B is higher than the Internal Rate of Return of project A. Required: A) Is the NPV for Project A higher than, equal to, or lower than, the NPV for Project B, assuming a 10% discount rate? B) Is the Payback Period for...

initial capital cost = 3,500,000 operating cash flow for each year = $1,000,000 recovery of capital...

initial capital cost = 3,500,000 operating cash flow for each year = $1,000,000 recovery of capital Assets after five years =$270,000 the hurdle rate for this project is 12%. it the initial cost of working capital is $490,000 for each items as teapots, teacups, saucers, and napkins, should farbucks open this new shop if it will be in business for only five years? what is the most it can invest in working capital and still have a positive net present...

Question 2 (10 marks): Option M: benefits of $500,000 a year, initial cost of $5,000,000, indirect...

Question 2 : Option M: benefits of $500,000 a year, initial cost of $5,000,000, indirect annual net revenue of $70,000, useful life of 25 years Option N: benefits of $600,000 a year, disbenefits of $150,000 a year, initial cost of $6,500,000, indirect annual net revenue of $80,000, useful life of 30 years Option P: benefits of $600,000 a year, disbenefits of $120,000 a year, initial cost of $3,600,000, annual M&O of $60,000, useful life of 20 years If the options...

Question 2 (10 marks): Option M: benefits of $500,000 a year, initial cost of $5,000,000, indirect...

Question 2 : Option M: benefits of $500,000 a year, initial cost of $5,000,000, indirect annual net revenue of $70,000, useful life of 25 years Option N: benefits of $600,000 a year, disbenefits of $150,000 a year, initial cost of $6,500,000, indirect annual net revenue of $80,000, useful life of 30 years Option P: benefits of $600,000 a year, disbenefits of $120,000 a year, initial cost of $3,600,000, annual M&O of $60,000, useful life of 20 years If the options...

A 6-year investment (current) requires initial capital of PLN 300,000 at the beginning and additional payment...

A 6-year investment (current) requires initial capital of PLN 300,000 at the beginning and additional payment of PLN 50,000 at the begining of second year. Investment will generate revenue of PLN 20,000 at the end of second and third year, then it will generate PLN 110,000 at the end of four year and finally PLN 280,000 at the end of fifth and sixth year. It is expected that market rates will be fixed in time at 3% per 3M under...

First five years of a business: Cost of Capital 8.00% Initial Investment $(40,000) Year 1 Cash...

First five years of a business: Cost of Capital 8.00% Initial Investment $(40,000) Year 1 Cash Flows 8,000 Year 2 Cash Flows 9,200 Year 3 Cash Flows 10,000 Year 4 Cash Flows 12,000 Year 5 Cash Flows 14,500 Calculate the net present value (NPV), internal rate of return (IRR) and payback period. Assume you can sell the business in year 5 for 10x’s annual cash flow. Calculate the net present value (NPV) and internal rate of return (IRR). Suppose the...

At the beginning of the year, the company issued $500,000 10-year bonds at par. The holder...

At the beginning of the year, the company issued $500,000 10-year bonds at par. The holder of the bonds can convert $10,000 in bonds into cash based on the performance of the company. Specifically, each $10,000 bond can be converted into cash at the rate of 10% of net income. Draft financial statements reveal net income of $250,000. prepare a report to the board of directors that discusses the recognition, measurement, and presentation of the financial instruments issued.

Question

The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately)....

Solutions

Expert Solution

Related Solutions

o The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e.,...

Create a 5-year capital budget for the project below assuming the following. 1.$500,000 initial outlay for...

A new factory at Arcata requires an initial outlay of $3.58 million to be paid immediately....

1. project initial cost (incurred at beginning of year 1) Project life Salvage value Positive annual...

initial capital cost = 3,500,000 operating cash flow for each year = $1,000,000 recovery of capital...

Question 2 (10 marks): Option M: benefits of $500,000 a year, initial cost of $5,000,000, indirect...

Question 2 (10 marks): Option M: benefits of $500,000 a year, initial cost of $5,000,000, indirect...

A 6-year investment (current) requires initial capital of PLN 300,000 at the beginning and additional payment...

First five years of a business: Cost of Capital 8.00% Initial Investment $(40,000) Year 1 Cash...

At the beginning of the year, the company issued $500,000 10-year bonds at par. The holder...