Question

Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Hillcrest Apartments Yearly Aftertax Cash Inflow P 85,000 Probability windy Acres Yearly Aftertax Cash Inflow 80,000 85,000 100,000 115,003 120,000 robability 0.2 0.2 0.2 Mr. Backster is likely to hold the apartment complex of his choice for about 20 years and will use this period for decision-making purposes. Either apartment can be purchased for $180,000. Mr. Backster uses a risk-adjusted discount rate approach when evaluating investments. His scale is related to the coefficient of variation (for other types of investments, he also considers other measures). Discount Rate Coefficient of Variation [email protected] 8.35-0.40 0.40-0.50 Over .50 (cost of capital) not considered a. Compute the risk-adjusted net present value for Windy Acres and Hillcrest Apartments. (Round "PV Factor" to 3 decimal places. Enter the answers in thousands of dollars. Do not round Intermediate calculations. Round the final answers to nearest whole < Prey 47 of 47 Next

Answer 1

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STATS -Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins Z AutoSum Cut A A Wrap Text Calibri 11 General Copy Fill Merge & Center Conditional Format Formatting as Table Styles Paste в IU* Cell Insert Delete Format Sort & Find & % Format Painter Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing CK536 CM CJ CK CL CN CO СР 517 518 windy acres 519 VARIANCE= P* (CF-E(CF))^2 PROB (P) CASH FLOW (CF) P*CF 520 80000 0.2 16000 80000000 85000 521 0.2 17000 45000000 100000 20000 522 0.2 0 523 0.2 115000 23000 45000000 524 0.2 24000 80000000 120000 E(CF)= 525 100000 VARIANCE (V (CF) 526 250000000 15811.3883 [SQRT(variance)] 527 STANDARD DEVIATION= hillcrest apartments 528 VARIANCE P*(CF-E(CF))^2 PROB (P) CASH FLOW (CF) P*CF 529 530 0.2 85000 17000 20000000 90000 0.3 27000 531 7500000 532 0.4 100000 40000 10000000 533 0.1 110000 11000 22500000 E(CF)= 95000 534 VARIANCE (V (CF)) 60000000 535 7745.9667 [SQRT(variance)] STANDARD DEVIATION= 536 537 EMV MEAN STDV HYPOTHI PV FV DIVIDEND assignment DEAR Sheet2 COv TREND freq MATRIX TIME SERIES corr REGRESSION range CAMERA INTERVAL, NORMAL Re ferences 120% 05:00 ENG 28-11-2019

STATS -Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center Conditional Format Formatting as Table Styles Insert Delete Format Paste B I U $ % , +.0 .00 Cell Sort & Find & .00 .0 Format Painter Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing fx СК555 CP CJ CK CL CM CN CO 538 APPLICABLE 539 standard deviation coefficient of variation (cv) в /A DISCOUNT RATE expected CF 540 541 windy crest 100000 15811.3883 8% [CV IS IN FIRST RANGE] 0.1581 hillcrest apartment 95000 8% [CV IS IN FIRST RANGE] 542 7745.9667 0.0815 543 544 (a) RISK ADJUSTED NPV 545 windy crest 546 NPV= PV OF ALL EXPECTED CF - INVESTMENT note 547 NPV 100000 X PVIFA @8%, 20 YEARS - 180000 PVIFA @8%, 20 YEARS 9.81814741 (1/r)* (1-(1/(1+r)^n)) NPV 548 100000 X 9.81814741 - 180000 549 NPV= 801814.74 550 hillcrest apartment 551 95000 X PVIFA @8%, 20 YEARS - 180000 552 NPV = 553 NPV 95000 X 9.81814741 - 180000 554 NPV = 752724.00 555 if projects are mutually exclusive, he should go for : windy acres 556 b-1 It has higher NPV if projects are not mutually exclusive, he should go for both b-2 both has positive NPV 557 EMV MEAN STDV assignment DEAR Sheet2 COV TIME SERIES corr REGRESSION PV FV DIVIDEND INTERVAL, NORMAL ΗΥΡΟΤΗΠ TREND freq MATRIX range CAMERA Rea erences 120% WA 05:00 ENG 28-11-2019