In: Finance
The equipment cost (equipment plus shipping and installation) can be depreciated at the rate of 21% in the first year. For the remaining 5 years (years 2-6) the depreciation will be equal to $30,000 per year. What is the amount of depreciation in year 1?
In: Finance
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An investment under consideration has a payback of eight years and a cost of $868,000. Assume the cash flows are conventional. |
| If the required return is 10 percent, what is the worst-case NPV? |
In: Finance
Project A has an initial cost of $211,400 and projected cash flows of $46,200, $64,900, and $135,800 for Years 1 to 3, respectively. Project B has an initial cost of $187,900 and projected cash flows of $43,200, $59,700, and $125,600 for Years 1 to 3, respectively. What is the incremental IRRA–B of these two mutually exclusive projects?
In: Finance
An oil well will have a first cost of $470,000 and annual costs of $131,250. Income is expected to be $190,000 per year. What is the payback period at 6% per year interest?
a. Between 8&9 years
b. Between 9&10 years
c. Between 10&11 years
d. Between 11&12 years
In: Finance
PowerPlug Corp. is evaluating a project that will cost $400,000 initially and will generate free cash flows of either $440,000 (with a probability of 30%) or $600,000 (with a probability of 70%) in one year.
The risk-free rate is 2% and the project's required return is 12%. Assume perfect capital markets.
Part 1: If the project is the only project of the firm, what is the initial value of equity (in $)?
Part 2: If the company finances 30% of the project by borrowing the initial costs at the risk-free rate, what is the initial value of equity (in $)?
In: Finance
Sheridan, Inc., a resort management company, is refurbishing one of its hotels at a cost of $7,156,793. Management expects that this will lead to additional cash flows of $1,650,000 for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Sheridan go ahead with this project?
| The IRR of this project is enter the IRR of this project in percentages rounded to 2 decimal places % |
| The firm should select an option rejectaccept the project |
In: Finance
Project A has a total present value of future cash flows of $98,200 and a cost of $102,000. Project B has a total present value of future cash flows of $386,911 and a cost of $287,211. Project C has a total present value of future cash flows of $784,000 and a cost of $668,000. Project D has a total present value of future cash flows of $119,865 and a cost of $98,770. Which of these projects has the highest Profitability Index?
In: Finance
Silo Mills is an all-equity financed firm that has a beta of 1.18 and a cost of equity of 12.2 percent. The risk-free rate of return is 2.9 percent. The firm is currently considering a project that has a beta of 1.03. What discount rate should be assigned to this project?
In: Finance
The use of the overall firm’s weighted average cost of capital
(WACC or RWACC) in discounting projects of different
risk levels results in the _______________________.
A) rejection of too many high-risk projects
B) acceptance of too many low-risk projects
C) acceptance of too many high-risk projects and rejection of too
many low-risk projects
D) acceptance of too many low-risk projects and rejection of too
many high-risk projects
In: Finance