ZuoTi.Pro
Question

6. Consider the following potential investment. A firm can invest $250,000 today to acquire a patent....

6. Consider the following potential investment. A firm can invest $250,000 today to acquire a patent. The firm estimates that in the next 10 years ownership of the patent will result in returns of the following amounts. Assuming the firm has a cost of capital of 8%, calculate the net present value of the investment.

Year 1

$25,000

Year 2

$26,000

Year 3

$27,500

Year 4

$30,000

Year 5

$35,000

Year 6

$32,500

Year 7

$30,000

Year 8

$25,000

Year 9

$20,000

Year 10

$15,000

7. Consider a firm faced with two potential projects: A and B. Project A requires an initial investment of $300,000, whereas Project B requires an initial investment of $450,000. Over the next 10 years both projects are estimated to result in the revenues forecasted below. Assume the firm has a cost of capital of 10%. Calculate and report the NPV of both Projects. Which of the two projects should the firm invest in?

Project A

Project B

Year 1

$35,000

$25,000

Year 2

$36,000

$46,000

Year 3

$47,500

$57,500

Year 4

$50,000

$67,000

Year 5

$65,000

$78,000

Year 6

$72,500

$90,500

Year 7

$40,000

$100,000

Year 8

$35,000

$110,000

Year 9

$30,000

$100,000

Year 10

$25,000

$90,000
math   Statistics-And-Probability   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

2, 5o, oodo and es hmates Cash flour is ven Hhe ment lo yeany Cost ofe capital = g./. wet Present Value of an In vestment is de fined as the difference behaween the fodays velue (dúcundad valuu) of ha faoe cash los andtodays valu of Hu nvested cash Todays value of the lv, ve sted Cash キ 2,5o, ooo fon e futwre Cosh flous e m at a Mate of 8% to determine Heir |resent value Suppose at the end of year 1 we hece ve 25,00。 ux haw e to discount the So, pore sent value of this retuhh 25,000 0+ 8%) hesent value oft Retarn at the end of Seco Se cond Yeat 26, ooo Hens, Inusent Value of Expecthdl ash Flous 25, 00026,000t5oo 1+8% 27, 500 (+ 8 %)3 30,000 lt 8% 35,000 1t8%, ltg7. 23,148.15 22 290, t 21830, 38 22 05o. 30 23820. 20480.51 + 17504. I + 13506-72 + ,o, oo 4-38 + 6947. go1,81,585 , чт - 2,52,000 -6,414.53 Henet, Net Pruent Valux 93 Pjet A To days value of In verted Cath 3,00, ooo in hu abere quashon, we calculate today ( tate by which hu omount weudd haue nereased had ux unvested money somewtheu else) 35,000 (1+10%) 3 36,000 + 25,ooo (+10%) 2- = 31,8,8.18 + 29,752 , 07 + 35, 687.45 t 3yJso·67tyo 35 g. 88 + yo g29.36 + 20 S 26. 32 + 1 + 12922-33 + 9638.58 632 7.76 2,11, Projet 4,56,000 To days Valu of Inruted Cash,50,000 Cost ot Capihao. frusent Valu of utur Cash Flows 22,121. 27 t 38016.5 3 t 43200 .6 + 45761.9 + 4843/-$( + 510 91.9 + 12 428 963.328,091.8 = - 21036. t ttu loss um fHject b 421036.7) 사 let than loss in Prajest A (201the fir ivvest in Proier 6 loss 녜 IKol 28091.) the

0 0
Add a comment
Know the answer?
Add Answer to:
6. Consider the following potential investment. A firm can invest $250,000 today to acquire a patent....
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 1.Fly High Inc. intends to invest in a new airplane. Information regarding the investment in the...

    1.Fly High Inc. intends to invest in a new airplane. Information regarding the investment in the airplane is given below: Project A Life of project    5 years Initial investment            $31,592,700 Net annual after-tax cash inflow $7,500,000 The cost of capital for the company is 8%. Calculate the internal rate of return (IRR) for the new airplane. a.10% b.6% c.8% d.5% 2. There are four mutually exclusive projects, Project 1, Project 2, Project 3, and Project 4, whose internal rates of...

  • 6) A firm is evaluating three mutually exclusive capital budgeting projects. The net present value of...

    6) A firm is evaluating three mutually exclusive capital budgeting projects. The net present value of each project is shown below. Given this information, which project() should the firm accept? Project 1 100,000 NPV, S Project 2 10,000 Project 3 - 100,000 a) accept Projects 1 and 2, and reject Project 3 b) accept Projects 1 and 3, and reject Project 2 c) accept Project 3, and reject Projects 1 and 2 d) accept Project 1, and reject Projects 2...

  • P10–24 All techniques: Decision among mutually exclusive investments Pound Industries is attempting to select the best...

    P10–24 All techniques: Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. LG 2 LG 3 LG 4 LG 5 LG 6 LG 2 LG 3 LG 4 LG 5 LG 6 Project A Project B Initial investment (CF0) $130,000 $85,000 Year (t) Cash inflows (CFt) 1 $25,000 $40,000 2 35,000 35,000 3 45,000...

  • a firm is considering a potential investment project that would result in an immediate loss in...

    a firm is considering a potential investment project that would result in an immediate loss in free cash flow of $94 million, but would generate positive free cash flow of $ 7 million next year. The firm expects the free cash flow produced by the project to grow annually at 2 % forever. The firm's weighted average cost of capital is 6 %. What is the NPV of the project?

  • Choosing Between two Mutually Exclusive Projects Question 2: A company can cither invest in project A,...

    Choosing Between two Mutually Exclusive Projects Question 2: A company can cither invest in project A, project B, or neither (the projects are mutually exclusive and the company has no other investment options). Project A requires an initial investment of $1,000,000 and provides cash flows of $300,000 a year for six years. The project will also return $200,000 in capital back to the company in year six. Project B requires a $375,000 investment and will have cash flows of $200,000...

  • P10-14 Internal rate of return For each of the projects shown in the following table, calcu-...

    P10-14 Internal rate of return For each of the projects shown in the following table, calcu- late the internal rate of return (IRR). Then indicate, for each project, the maximum cost of capital that the firm could have and still find the IRR acceptable. Project A $90,000 Project D $240,000 Initial investment (CF) Year (t) CA $20,000 25,000 30,000 35,000 40,000 Project B Project C $490,000 $20,000 Cash inflows (CF) $150,000 $7,500 150,000 7,500 150,000 7,500 150,000 7,500 7,500 $120,000...

  • P10-14 Internal rate of return For each of the projects shown in the following table, calcu-...

    P10-14 Internal rate of return For each of the projects shown in the following table, calcu- late the internal rate of return (IRR). Then indicate, for each project, the maximum cost of capital that the firm could have and still find the IRR acceptable. Project A $90,000 Project D $240,000 Initial investment (CF) Year (t) CA $20,000 25,000 30,000 35,000 40,000 Project B Project C $490,000 $20,000 Cash inflows (CF) $150,000 $7,500 150,000 7,500 150,000 7,500 150,000 7,500 7,500 $120,000...

  • 4) A firm is considering the following investment project. Assume a 5-year property for MACRS Before-Tax Cash Flow...

    4) A firm is considering the following investment project. Assume a 5-year property for MACRS Before-Tax Cash Flow Year (thousands) 0 - 100,000 +35,000 +35,000 +35,000 +35,000 5 +35,000 The income tax rate is 21%. If the firm requires a 10% after-tax rate of return, should the project be undertaken? MACRS depreciation will be used.

  • U2 - 6 ?(Round to two decimal? places.) Your firm has identified three potential investment projects....

    U2 - 6 ?(Round to two decimal? places.) Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Cash Flow Today (millions) -$14 $4 S22 Cash Flow in One Year (millions) 523 $4 - $7 Project Suppose all cash flows are certain and the risk-free interest rate is 9% a. What is the NPV of each project? b. If the firm can choose only one of these projects, which should it choose? c....

  • Your firm has identified three potential investment projects. The projects and their cash flows are shown...

    Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Cash Flow Today (millions) $7 $7 $18 Cash Flow in One Year (millions) $23 $3 -$8 Project Suppose all cash flows are certain and the risk-free interest rate is 11%. a. What is the NPV of each project? b. If the firm can choose only one of these projects, which should it choose? c. If the firm can choose any two of these...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT