5. If money can be invested at 5% compounded annually, A. Accumulate P1,000 for 15 years. B. Discount the result of problem A for 10 years. C. Accumulate P1,000 for 5 years. Compare the results of B and C.

5. If money can be invested at 5% compounded annually, A. Accumulate P1,000 for 15 years. B. Discount the result of problem A for 10 years. C. Accumulate P1,000 for 5 years. Compare the results of B and C.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 45P: A project does not necessarily have a unique IRR. (Refer to the previous problem for more...

See similar textbooks

Similar questions

Assume the demand for a companys drug Wozac during the current year is 50,000, and assume demand will grow at 5% a year. If the company builds a plant that can produce x units of Wozac per year, it will cost 16x. Each unit of Wozac is sold for 3. Each unit of Wozac produced incurs a variable production cost of 0.20. It costs 0.40 per year to operate a unit of capacity. Determine how large a Wozac plant the company should build to maximize its expected profit over the next 10 years.
A project does not necessarily have a unique IRR. (Refer to the previous problem for more information on IRR.) Show that a project with the following cash flows has two IRRs: year 1, 20; year 2, 82; year 3, 60; year 4, 2. (Note: It can be shown that if the cash flow of a project changes sign only once, the project is guaranteed to have a unique IRR.)
It is January 1 of year 0, and Merck is trying to determine whether to continue development of a new drug. The following information is relevant. You can assume that all cash flows occur at the ends of the respective years. Clinical trials (the trials where the drug is tested on humans) are equally likely to be completed in year 1 or 2. There is an 80% chance that clinical trials will succeed. If these trials fail, the FDA will not allow the drug to be marketed. The cost of clinical trials is assumed to follow a triangular distribution with best case 100 million, most likely case 150 million, and worst case 250 million. Clinical trial costs are incurred at the end of the year clinical trials are completed. If clinical trials succeed, the drug will be sold for five years, earning a profit of 6 per unit sold. If clinical trials succeed, a plant will be built during the same year trials are completed. The cost of the plant is assumed to follow a triangular distribution with best case 1 billion, most likely case 1.5 billion, and worst case 2.5 billion. The plant cost will be depreciated on a straight-line basis during the five years of sales. Sales begin the year after successful clinical trials. Of course, if the clinical trials fail, there are no sales. During the first year of sales, Merck believe sales will be between 100 million and 200 million units. Sales of 140 million units are assumed to be three times as likely as sales of 120 million units, and sales of 160 million units are assumed to be twice as likely as sales of 120 million units. Merck assumes that for years 2 to 5 that the drug is on the market, the growth rate will be the same each year. The annual growth in sales will be between 5% and 15%. There is a 25% chance that the annual growth will be 7% or less, a 50% chance that it will be 9% or less, and a 75% chance that it will be 12% or less. Cash flows are discounted 15% per year, and the tax rate is 40%. Use simulation to model Mercks situation. Based on the simulation output, would you recommend that Merck continue developing? Explain your reasoning. What are the three key drivers of the projects NPV? (Hint: The way the uncertainty about the first year sales is stated suggests using the General distribution, implemented with the RISKGENERAL function. Similarly, the way the uncertainty about the annual growth rate is stated suggests using the Cumul distribution, implemented with the RISKCUMUL function. Look these functions up in @RISKs online help.)
If money can be invested at 5% compounded annually, A.Accumulate $1,000 for 15 years. B. Discount the result of problem A for 10 years. C. Accumulate 1,000 for 5 years. Compare the results of B and C.
Evaluate the following statements:S1. Any investment income of general borrowing is deducted from capitalizable borrowing cost.S2. If the asset is financed by specific borrowing but a portion is used for working capital purposes, the borrowing shall be treated as general borrowing in determining capitalizable borrowing cost. a.False, False b.False, True c.True, True d.True, False
Explain why a business's liquidation value would be different from its going concern value. because the liquidation value includes the cost of the broker's commission, while the going concern value does not because the liquidation value contains the value of any real estate holdings, while the going concern value does not because the going concern value contains intangible, non-transferable assets like goodwill, while the liquidation value does not because the going concern value is calculated using replacement value, while the liquidation value is calculated using the cost method +
Explain why a business's liquidation value would be different from its going concern value. because the liquidation value contains the value of any real estate holdings, while the going concern value does not because the going concern value contains intangible, non- transferable assets like goodwill, while the liquidation value does not because the liquidation value includes the cost of the broker's commission, while the going concern value does not because the going concern value is calculated using replacement value, while the liquidation value is calculated using the cost method
Consider a project with the following cash flows: year 1, 2$400; year 2, $200; year 3, $600; year 4, 2$900; year 5, $1000; year 6, $250; year 7, $230. Assume a discount rate of 15% per year.a. Find the project’s NPV if cash flows occur at the ends of the respective years.b. Find the project’s NPV if cash flows occur at the beginnings of the respective years.c. Find the project’s NPV if cash flows occur at the middles of the respective years.
You have recently won the super jackpot in the WashingtonState Lottery. On reading the fine print, you discover that you have the following twooptions:a. You will receive 31 annual payments of $250,000, with the first payment beingdelivered today. The income will be taxed at a rate of 28 percent. Taxes will bewithheld when the checks are issued.b. You will receive $530,000 now, and you will not have to pay taxes on this amount.In addition, beginning one year from today, you will receive $200,000 each yearfor 30 years. The cash flows from this annuity will be taxed at 28 percent.Using a discount rate of 7 percent, which option should you select?
The interest rate for the first five years of a $34,000 mortgage loan was 3.95% compounded semiannually. The monthly payments computed for a 10-year amortization were rounded to the next higher $10. (Do not round intermediate calculations and round your final answers to 2 decimal places.) a. Calculate the principal balance at the end of the first term. Principal balance $ b. Upon renewal at 6.45% compounded semiannually, monthly payments were calculated for a five-year amortization and again rounded up to the next $10. What will be the amount of the last payment? Final payment $
A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each year for three years and then have a market value of $10,000 at the end of the third year. The equipment could be leased for $22,000 a year, with the first payment due immediately. If the organization does not pay income taxes and its MARR is 10%, show whether the organization should lease or purchase the equipment.
- Consider demand: x(p₁) = 400 — 2p1 At a market price of p₁ = $125 per unit: • Determine the social loss due to moral hazard when assuming: 1. Full insurance compared to uninsured 2. A co-payment of $50 compared to uninsured 3. A 75% coinsurance rate compared to uninsured