Elliott Dumack must earn a minimum rate of return of 10 % to be adequately compensated...
Elliott Dumack must earn a minimum rate of return of 10 % to be adequately compensated for the risk of the following investment:
|
Initial Investment |
$17 comma 32817,328 |
||
|
End of Year |
Income |
||
|
1 |
$8 comma 3018,301 |
||
|
2 |
$2 comma 6532,653 |
||
|
3 |
$7 comma 3567,356 |
||
|
4 |
$1 comma 4251,425 |
||
|
5 |
$1 comma 4001,400 |
||
a. Use present-value techniques to estimate the yield on this investment.
b. On the basis of your finding in part a , should Elliott make the proposed investment?
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Elliott Dumack must earn a minimum rate of return of 10 % to be
adequately compensated...
Elliott Dumack must earn a minimum rate of return of 10% to be adequately compensated for...
Elliott Dumack must earn a minimum rate of return of 10% to be adequately compensated for the risk of the following investment a. Use present-value techniques to estimate the yield on this investment. b. On the basis of your finding in part a, should Elliott make the proposed investment? a. The yield on this investment is %. (Round to two decimal places.) i Data Table - X Initial Investment $29,548 End of Year Income $15,089 $4,797 $8,639 $3,078 $2,700 (Click...
Sara Holliday must earn a return of 7 % on an investment that requires an initial...
Sara Holliday must earn a return of 7 % on an investment that requires an initial outlay of $2,400 and promises to return $6,200 in 11 years. a. Use present-value techniques to estimate the yield on this investment. b. On the basis of your finding in part a , should Sara make the proposed investment? Explain. a. The yield on this investment is
6. If the internal rate of return is the same as the minimum required rate of...
6. If the internal rate of return is the same as the minimum required rate of return used to compute the net present value of a proposed machine purchase, then the net present value will be: a. positive. c. zero. b. negative. d. unknown. 7. The Valentine Company has decided to buy a machine costing $14,750. Estimated cash savings from using the new machine amount to $4,500 per year. The machine will have no salvage value at the...
Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment...
Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use present values are (1) Net present value method (NPV) and (2) Internal rate of return (IRR) method. Methods That Use Present Values Of the two capital investment evaluation methods, a defining characteristic NPV and IRR is that they consider the time value of money. This means that money tomorrow is worth less than money today....
Steve's Stoves Company, which desires a minimum rate of return on its investment projects of 15%,...
Steve's Stoves Company, which desires a minimum rate of return on its investment projects of 15%, has two proposals under consideration. Their costs and expected cash flows are: A B $132,000 $96,000 Initial investment Expected after-tax cash flows: Year 1 Year 2 Year 3 Year 4 $40,000 $32,000 $48,000 $24,000 $52,000 $56,000 $40,000 $32,000 In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1,...
TRUE OR FALSE 1) A non-interest bearing checking account is still considered an investment. 2) Earning a high rate of re...
TRUE OR FALSE 1) A non-interest bearing checking account is still considered an investment. 2) Earning a high rate of return with little or no risk is a realistic investment goal. 3) Underwriters are responsible for promoting and facilitating the sale of securities. 4) Only U.S. corporations can list their stocks on the NYSE. 5) A market maker brings together buyers and sellers in an auction market. 6) Margin trading requires the borrowing of securities. 7) An investor who mistakenly...
10. Value 10.00 points The YTM on a bond is the interest rate you earn on...
10. Value 10.00 points The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY) a. Suppose that today you buy a bond with an annual coupon of 8 percent for $1,030. The bond has 17 years to maturity. What rate of return do you expect to earn on your investment? Assume...
An investor wants to determine how much interest he must earn to be able to make...
An investor wants to determine how much interest he must earn to be able to make the payments on a 10-year mortgage which has increasing annual The problem is summarized in the accompanying spreadsheet. The investor has enough money to make an initial investment of $9,000 and hopes he can earn 12%, compounded quarterly, on his investments. He would like to know how low his annual return can be and still allow him to make his payments from interest income....
Suppose your firm would like to earn 10% yearly return from the following two investment projects...
Suppose your firm would like to earn 10% yearly return from
the following two investment projects of equal risk.(the table is
attatched in the form of image)
(a)If only one project can be accepted, based on the NPV
method which one should it be? Support your answer with
calculations. (9 marks)
(b)Suppose there is another four-year project (Project C) and
its cash flows are as follows:
C0 = –$8,000
C1 = $2,000
C2 = $2,500
C3 = $2,000
C4...
Part Two Net Present Value Method Net present value (NPV) is one method that can be...
Part Two Net Present Value Method Net present value (NPV) is one method that can be used to evaluate the financial viability of potential projects. It determines the present value of all future cash flows associated with potential projects and measures this against the cost of the project. To use net present value, a required rate of retum must be defined. The required rate of return is the minimum acceptable rate of return that an investment must yield for it...
Elliott Dumack must earn a minimum rate of return of 10% to be adequately compensated for the risk of the following investment a. Use present-value techniques to estimate the yield on this investment. b. On the basis of your finding in part a, should Elliott make the proposed investment? a. The yield on this investment is %. (Round to two decimal places.) i Data Table - X Initial Investment $29,548 End of Year Income $15,089 $4,797 $8,639 $3,078 $2,700 (Click...
Steve's Stoves Company, which desires a minimum rate of return on its investment projects of 15%, has two proposals under consideration. Their costs and expected cash flows are: A B $132,000 $96,000 Initial investment Expected after-tax cash flows: Year 1 Year 2 Year 3 Year 4 $40,000 $32,000 $48,000 $24,000 $52,000 $56,000 $40,000 $32,000 In addition, proposal B has an expected cash salvage value at the end of four years of $8,000. The present value of $1 due in 1,...
10. Value 10.00 points The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY) a. Suppose that today you buy a bond with an annual coupon of 8 percent for $1,030. The bond has 17 years to maturity. What rate of return do you expect to earn on your investment? Assume...
An investor wants to determine how much interest he must earn to be able to make the payments on a 10-year mortgage which has increasing annual The problem is summarized in the accompanying spreadsheet. The investor has enough money to make an initial investment of $9,000 and hopes he can earn 12%, compounded quarterly, on his investments. He would like to know how low his annual return can be and still allow him to make his payments from interest income....
Suppose your firm would like to earn 10% yearly return from
the following two investment projects of equal risk.(the table is
attatched in the form of image)
(a)If only one project can be accepted, based on the NPV
method which one should it be? Support your answer with
calculations. (9 marks)
(b)Suppose there is another four-year project (Project C) and
its cash flows are as follows:
C0 = –$8,000
C1 = $2,000
C2 = $2,500
C3 = $2,000
C4...
Part Two Net Present Value Method Net present value (NPV) is one method that can be used to evaluate the financial viability of potential projects. It determines the present value of all future cash flows associated with potential projects and measures this against the cost of the project. To use net present value, a required rate of retum must be defined. The required rate of return is the minimum acceptable rate of return that an investment must yield for it...
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