Assume that a company is considering a $2,400,000 capital investment in a project that would earn net income for each of the next five years as follows: Sales Variable expenses $ 1,900,000 Contribution margin 800,000 1,100,000 12:46 Fixed expenses: Out-of-pocket operating costs $ 300,000 Depreciation. 400,000 700,000 Net operating income $ 400,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. If the company's discount rate is 21%, then the project's net present value is closest to

Assume that a company is considering a $2,400,000 capital investment in a project that would earn net income for each of the next five years as follows: Sales Variable expenses $ 1,900,000 Contribution margin 800,000 1,100,000 12:46 Fixed expenses: Out-of-pocket operating costs $ 300,000 Depreciation. 400,000 700,000 Net operating income $ 400,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. If the company's discount rate is 21%, then the project's net present value is closest to

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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PROBLEM # 2 Consider the following cash flow of a company: Year Cash flow -600 10 -5000 11-40 1000 a) Compute the IRR for this table b) At MARR 15% determine the acceptability of each project.
The following investment opportunities are available to an investment center manager; Project Initial Investment Annual Earnings A $800.000 $90,000 B $100,000 $20,000 C S300,000 S25,000 D $400,000 S60,000 Required: a. If the investment is currently making a return on investment of 16 percent, which project (s) would the manager want to pursue? b. If the cost of capital is 10 percent and the annual earnings approximate cash flows excluding finance charges, which project(s) should be chosen? c. Suppose only one project can be chosen and the annual eamings approximate cash flows excluding finance charges. Which project should be chosen?
Walden Industries is considering investing in production-management software that costs $600,000, has $67,000 residual value, and leads to cost savings of $2,300,000 per year over its five-year life. Calculate the average amount invested in the asset that should be used for calculating the accounting rate of return. Question content area bottom Part 1 A. $333,500 В. $667,000 С. $67,000 D. $600,000
Project Description Initial Cost Annual Revenue ($1000s) ($1000s) $44 A Replace equipment to reduce labor costs 200 B. Overhaul equipment to 150 $36 reduce material costs Replace Equipment to reduce defective parts Change packaging to reduce shipping costs 120 $29 D 100 $25 ACME, Inc. is evaluating four proposals to increase their earnings. The initial costs and annual revenues are shown in the table below. If they have $300,000 in capital available to invest in these projects, what would ACME's rate of return be if they pursued Project A? Assume a common study period of 10 years. Show all work.
The following table contains information about four potential investment projects that Castle Corporation is considering. Required Investment $640,000 Payback Project A Project Life ARR Period 5 19.50% 3.9 B $ 890,000 4 17.75% 3.5 с $ 1,140,000 4 10.75% 3.2 NPV $203,250 $193,062 $ 216,670 Profitability Index 2.88 1.22 1.35 D $ 1,640,000 5 12.45% 3.8 $ 246,008 1.30 Required: 1. Rank the four projects in order of preference under each method indicated by the headers: 2. Which method is the best for evaluating the investments? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Rank the four projects in order of preference under each method indicated by the headers: 1st preferred 2nd preferred 3rd preferred 4th preferred Accounting Rate of Return Payback Period Net Present Value Profitability Index
Saved A company is considering the following three Investment projects (Ignore income taxes.): Investment required Present value of cash inflows Project C $46,800 $ 51,948 Project D $ 53,300 $ 61,828 Project E $110,500 $ 120,445 Rank the projects according to the profitablity index, from most profitable to least profitable. Multiple Choice D. C. E C.E. D E. C. D E. D. C
Porter Company is analyzing two potential investments Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Project X Project Y $ 75,900 $ 64,000 26,000 26,000 26,000 4,400 28,000 28,000 20,000 If the company is using the payback period method, and it requires a payback of three years or less, which project(s) should be selected? 0
METHODS THAT CONSIDER TIME VALUE OF MONEY Two investment proposals have been made and the following data thereon are given: Project ALPHA Project BETA Investment P123,417 P155,934 Depreciable assets included in the investment figure 60,000 72,000 Economic life 8 years 12 years Annual sales revenue P65,000 P78,000 Annual out-of-pocket operating cost 36,000 42,500 Income tax rate 35% Cost of capital 10% Determine which proposal is the better one based on: a. Internal rate of return b. Net present value c. Profitability index d. Discounted payback period
If a $300,000 investment has a project profitability index of 0.25, what is the netpresent value of the project?a. $75,000b. $225,000c. $25,000d. $275,000
2. Calculating Project NPV The Fleming Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Year 0 $32,800 450 Year 1 Year 2 Year 3 Year 4 $14,200 2,100 8,200 175 $15,900 $15,700 2,100 2,100 8,200 8,200 250 275 $12,900 2,100 8,200 ? a. Compute the incremental net income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?
Compute the project cost. Gross income 1,000,000 Life of project Operating cost Rate of project 500,000 5 years 20% Benefit ratio 1.08 O a. P1,384,543.00 O b. P1,348,543.00 O c. P1,384,534.00 O d. P1,384,453.00
Homework, Chapter 26 Average Rate of Return The following data are accumulated by Watershed Inc. in evaluating two competing capital investment proposals: Project A Project z Amount of investment $80,000 $92,000 Useful life 4 years 7 years Estimated residual value Estimated total income over the useful life $8,800 $27,370 Determine the expected average rate of return for each project. Round your answers to one decimal place. Project A Project z

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