Gemini is looking to make a $125,000 investment in a motor. The motor has a 5...

Gemini is looking to make a $125,000 investment in a motor. The motor has a 5 year expected life and no terminal disposal value. Management believes the new motor will yield $35,000 in annual savings in cash operating costs. Gemini’s required rate of return is 10% and their tax rate is 30%.
1. Determine the net present value, payback period, discounted payback period, and internal rate of return for this investment.
2. Should Gemini make this investment? Why or why not?

Expert Solution

NPV
Annual savings		35000
Less: Depreciation (125000/5)		25000
Savings after dep		10000
Less: Tax @30%		3000
Income aftere tax		7000
Add: Depreciation		25000
Annual cash inflows		32000
Annuity factor f or 5 years at 10%		3.7908
Present value of Inflows		121305.6
Less: Initial Investment		125000
Net present value		-3694.4

Payback period: Initial Investment / Annual cash inflows
	125000/32000 = 3.91 years

Discounted payback period:
As NPV above is negative, the project is not ableto recover its investment within 5 years.

IRR:
Discount at 8.85%
Annual cash inflows		32000
Annuity factor f or 5 years at 8.85%		3.9048
Present value of Inflows		124953.6
Less: Initial Investment		125000
Net present value		-46.4

IRR: 8.85% approx

ekkarill92 answered 1 year ago

#5) Sasha has an investment worth 8,640 dollars. The investment will make a special payment of...

#5) Sasha has an investment worth 8,640 dollars. The investment will make a special payment of X to Sasha in 6 years from today. The investment also will make regular, fixed annual payments of 1,000 dollars to Sasha with the first of these payments made to Sasha later today and the last of these annual payments made to Sasha in 9 years from today. The expected return for the investment is 6.63 percent per year. What is X, the amount...

You make a 5 year investment. The investment returns in each of the 5 years are:...

You make a 5 year investment. The investment returns in each of the 5 years are: 3%, 10%, -15%, 0%, and 25% What is the holding period return of your stock investment? What is the arithmetic mean annual return of the investment? What is geometric mean annual return of the investment? If the order of the returns were reversed (so 25%, 0%, -15%, 10%, 3%), would the ending value of your investment be different?

A couple is looking to purchase their first home. The house is for sale at $125,000....

A couple is looking to purchase their first home. The house is for sale at $125,000. They can obtain an 80% LTV with a 7% interest rate and monthly payments. The loan is to be fully amortized over 30 years. Alternatively, they could obtain a 90% LTV at a 7.5% interest rate amortized over the same term. What is the incremental cost of borrowing the additional funds? Assuming the couple took the 80% loan, after fifteen years, the couple has...

Gemini Inc. an all equity firm is an investment of 1.66 million that will be depreciated...

Gemini Inc. an all equity firm is an investment of 1.66 million that will be depreciated according to the straight-line method over its four year life. The project is expected to generate earnings before taxes and depreciation of 600,000 per year for four years. The investment will not change risk level of the firm. The company can obtain a four year, 8.1 percent loan to finance the project from a local bank. All principal will be repaid in one balloon...

Gemini, Inc., an all-equity firm, is considering an investment of $1.64 million that will be depreciated...

Gemini, Inc., an all-equity firm, is considering an investment of $1.64 million that will be depreciated according to the straight-line method over its four-year life. The project is expected to generate earnings before taxes and depreciation of $604,000 per year for four years. The investment will not change the risk level of the firm. The company can obtain a four-year, 8.5 percent loan to finance the project from a local bank. All principal will be repaid in one balloon payment...

Gemini, Inc., an all-equity firm, is considering an investment of $1.75 million that will be depreciated...

Gemini, Inc., an all-equity firm, is considering an investment of $1.75 million that will be depreciated according to the straight-line method over its four-year life. The project is expected to generate earnings before taxes and depreciation of $609,000 per year for four years. The investment will not change the risk level of the firm. The company can obtain a four-year, 9 percent loan to finance the project from a local bank. All principal will be repaid in one balloon payment...

Gemini, Inc., an all-equity firm, is considering an investment of $1.71 million that will be depreciated...

Gemini, Inc., an all-equity firm, is considering an investment of $1.71 million that will be depreciated according to the straight-line method over its four-year life. The project is expected to generate earnings before taxes and depreciation of $596,000 per year for four years. The investment will not change the risk level of the firm. The company can obtain a four-year, 9.6 percent loan to finance the project from a local bank. All principal will be repaid in one balloon payment...

A young engineer is evaluating a 5-year investment, by looking at the cash flows at the...

A young engineer is evaluating a 5-year investment, by looking at the cash flows at the end of each year. The capital cost of the project is considered as occurring at the end of a hypothetical year, 0. The project has no start-up revenue, but requires a start-up capital cost of $50,000. The project promises revenues of $0, $20,000; $30,000; $40,000; $50,000, and $100,000; at the end of years 0, 1, 2, 3, 4, and 5, respectively. In addition to...

6. You are looking at an investment that will pay $10,000 in 5 years if you...

6. You are looking at an investment that will pay $10,000 in 5 years if you invest $3000 today. What is the implied rate of interest?

Make a control diagram for a servo motor with 5 types of controllers and ramp input...

Make a control diagram for a servo motor with 5 types of controllers and ramp input signal. -Identify the output and choose an adequate response with stability. -Specify which was the transfer function used.

Question