If an investment is producing a return that is greater than the required return, the investment's...
If an investment is producing a return that is greater than the required return, the investment's net present value will be:
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Homework Answers
IF an investment is producing return more than the required return, NPV will be positive.
Reason is Return is more than cost of capital of the project.
Answer: Positive.
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If an investment is producing a return that is greater than the
required return, the investment's...
Without using formulas, provide a definition of average accounting return (AAR).
Without using formulas, provide a definition of average accounting return (AAR). A ranking method used to assess projects. Pl greater than 1 signify positive NPV projects, while Piless than 1 signify negative NPV projects. A project analysis tool that measures the acceptability of a project through the difference between a project's initial investment and whether the present value of its cash flow will repay the investment A project analysis tool that determines the amount of time required for an investment to generate cash...
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of...
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $3.8 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $540,000 per year in direct labor costs. The company requires a 12% return from its investments. 1. Compute the proposed investment's net present value. 2. Using your answer from part 1, is the investment's internal rate of return higher or lower than 12%?...
Merrill Corp. has the following information available about a potential capital investment: Required 1 Required 2...
Merrill Corp. has the following information available about a potential capital investment: Required 1 Required 2 Required 3 Required 4 Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $ 600,000 $ 60,000 8 years $ 70,000 7% Calculate net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $i.) (Use appropriate factor(s) from the tables provided. Cash Outflows and negative amounts should be indicated by...
If the net present value (NPV) is positive when an investment is discounted at 12%, we...
If the net present value (NPV) is positive when an investment is discounted at 12%, we know that the internal rate of return (IRR) is: 1. Less than 12% 2. Equal to 12% 3. Greater than 12% 4. Greater than 0%
1) If Inventory investment is higher than firms planned, a) actual investment is greater than planned...
1) If Inventory investment is higher than firms planned, a) actual investment is greater than planned investment. b) actual investment is less than planned investment. c) actual investment must be negative. d) actual and planned investment are equal. Refer to the information provided in Figure 8.8 below to answer the questions that follow. Figure 8.8 2) Refer to Figure 8.8. The amount of planned investment decreases if the interest rate a) rises from 4% to 8%. b) remains at 8%....
Basic Concepts Roberts Company is considering an investment in equipment that is capable of producing more...
Basic Concepts
Roberts Company is considering an investment in equipment that
is capable of producing more efficiently than the current
technology. The outlay required is $2,300,000. The equipment is
expected to last five years and will have no salvage value. The
expected cash flows associated with the project are as follows:
Year
Cash Revenues
Cash Expenses
1
$2,980,000
$2,290,000
2
2,980,000
2,290,000
3
2,980,000
2,290,000
4
2,980,000
2,290,000
5
2,980,000
2,290,000
The present value tables provided in Exhibit 19B.1 and...
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net...
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $2,100,000 $ 200,000 8 years $ 210,000 10% Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent. 3. Calculate the net present value using a 13 percent discount rate....
1-If the fair value of a stock is greater than its market value, it means that:...
1-If the fair value of a stock is greater than its market value, it means that: A. The stock has a low level of risk B. The stock offers a high dividend C. The market is undervaluing the stock. D. The market is overvaluing the stock 2-A profitability index of .85 for a project means that: A-The present value of benefits is 85% greater than the project's costs. B. The project's NPV is greater than zero. C. The project returns...
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net...
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $1,200,000 $ 120,000 8 years $ 130,000 10% Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the...
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net...
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $2,eee, eee $ 210,000 8 years $ 220,000 101 Assume straight line depreciation method is used, Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent 3. Calculate the net present value using a 15 percent discount...
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $3.8 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $540,000 per year in direct labor costs. The company requires a 12% return from its investments. 1. Compute the proposed investment's net present value. 2. Using your answer from part 1, is the investment's internal rate of return higher or lower than 12%?...
Merrill Corp. has the following information available about a potential capital investment: Required 1 Required 2 Required 3 Required 4 Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $ 600,000 $ 60,000 8 years $ 70,000 7% Calculate net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $i.) (Use appropriate factor(s) from the tables provided. Cash Outflows and negative amounts should be indicated by...
Basic Concepts
Roberts Company is considering an investment in equipment that
is capable of producing more efficiently than the current
technology. The outlay required is $2,300,000. The equipment is
expected to last five years and will have no salvage value. The
expected cash flows associated with the project are as follows:
Year
Cash Revenues
Cash Expenses
1
$2,980,000
$2,290,000
2
2,980,000
2,290,000
3
2,980,000
2,290,000
4
2,980,000
2,290,000
5
2,980,000
2,290,000
The present value tables provided in Exhibit 19B.1 and...
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $2,100,000 $ 200,000 8 years $ 210,000 10% Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent. 3. Calculate the net present value using a 13 percent discount rate....
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $1,200,000 $ 120,000 8 years $ 130,000 10% Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the...
Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $2,eee, eee $ 210,000 8 years $ 220,000 101 Assume straight line depreciation method is used, Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent 3. Calculate the net present value using a 15 percent discount...
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