if a stock has zero NPV investment, should you invest it?
if a stock has zero NPV investment, should you invest it?
Homework Answers
When NPV is zero, the invesment gives neither profit nor any loss. So, when there is no profit there is no need to make an investment.
NPV is zero when present value of cash inflows equals cash outflows.
When NPV is positive the project must be accepted and when NPV is negative, the project must be rejected.
Assume that you invest $100 at time zero and that your investment is worth $110 one...
Assume that you invest $100 at time zero and that your investment is worth $110 one period later. A. Did you make any money? How much in dollars? How much in percent return on investment? B. Use the rate of return on investment from your previous answer as the discount rate and compute what the NPV of your investment was. What is the NPV? Did you make any money? C. What does this say about a zero-NPV investment?
Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $150,000 in year zero...
Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $150,000 in year zero (today) in new equipment. This investment is expected to generate net cash flows of $60,000 a year for the next 4 years (years 1-4). The salvage value after 4 years is zero. The discount rate (cost of capital) is 20 % a year Required: a) What is the net present value (NPV) of this project? NPV Should the firm invest, based on NPV? (1-yes,...
If the NPV of a project is zero is this the same as breakeven? Should one...
If the NPV of a project is zero is this the same as breakeven? Should one invest in this project then?
1. NPV According to the text, the NPV rule states that "An investment should be accepted...
1. NPV According to the text, the NPV rule states that "An investment should be accepted if the NPV is positive and rejected if it is negative." What does an NPV of zero mean? If you were a decision-maker faced with a project with a zero NPV (or very close to zero) what would you do? Why? 2. FORECASTING ERROR (RISK) What is a "forecasting error"? Why is it important to the analysis of capital expenditure projects?
Question 1: Evaluating Investment projects You are planning to invest $50,000 in new equipment. This investment...
Question 1: Evaluating Investment projects You are planning to invest $50,000 in new equipment. This investment will generate net cash flows of $30,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $ Enter negative numbers with a minus sign, l.e., -100 not ($100) or (100). Should you invest? Why? ONO -- the NPV is negative, which indicates...
Question 1: Evaluating investment projects You are planning to invest $100,000 in new equipment. This investment will g...
Question 1: Evaluating investment projects You are planning to invest $100,000 in new equipment. This investment will generate net cash flows of $60,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $ Enter negative numbers with a minus sign, i.e., -100 not ($100) or (100). Should you invest? Why? O NO -- the NPV is negative, which...
Question 1: Evaluating investment projects You are planning to invest $25,000 in new equipment. This investment...
Question 1: Evaluating investment projects You are planning to invest $25,000 in new equipment. This investment will generate net cash flows of $15,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $ Enter negative numbers with a minus sign, i.e., -100 not ($100) or (100). Should you invest? Why? YES -- the NPV is positive, which indicates...
Using NPV, should you invest in a project where the initial cash outflow is $28,700 and...
Using NPV, should you invest in a project where the initial cash outflow is $28,700 and the cash inflow in the first year is $2,200 and "grows" at a rate of 2.4 percent thereafter? Assume cost of capital is 10.4 percent. (Round answer to 0 decimal places, e.g. 5,125.) NPV of the project $ Should you invest in the project? YesNo
Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $100,000 in year zero...
Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $100,000 in year zero (today) in new equipment. This investment is expected to generate net cash flows of $40,000 a year for the next 4 years (years 1-4). The salvage value after 4 years is zero. The discount rate (cost of capital) is 20% a year. Required: a) What is the net present value (NPV) of this project? NPV = $ Should the firm invest, based on NPV?...
A project has a profitability index (PI) of 1.1. If the initial investment of $10,000. What do you know about the NPV and IRR? a) NPV may be smaller than zero b)NPV must be $1000 c) The IRR is the pre...
A project has a profitability index (PI) of 1.1. If the initial investment of $10,000. What do you know about the NPV and IRR? a) NPV may be smaller than zero b)NPV must be $1000 c) The IRR is the prevailing discount D) none of the above
Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $150,000 in year zero (today) in new equipment. This investment is expected to generate net cash flows of $60,000 a year for the next 4 years (years 1-4). The salvage value after 4 years is zero. The discount rate (cost of capital) is 20 % a year Required: a) What is the net present value (NPV) of this project? NPV Should the firm invest, based on NPV? (1-yes,...
Question 1: Evaluating Investment projects You are planning to invest $50,000 in new equipment. This investment will generate net cash flows of $30,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $ Enter negative numbers with a minus sign, l.e., -100 not ($100) or (100). Should you invest? Why? ONO -- the NPV is negative, which indicates...
Question 1: Evaluating investment projects You are planning to invest $100,000 in new equipment. This investment will generate net cash flows of $60,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $ Enter negative numbers with a minus sign, i.e., -100 not ($100) or (100). Should you invest? Why? O NO -- the NPV is negative, which...
Question 1: Evaluating investment projects You are planning to invest $25,000 in new equipment. This investment will generate net cash flows of $15,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $ Enter negative numbers with a minus sign, i.e., -100 not ($100) or (100). Should you invest? Why? YES -- the NPV is positive, which indicates...
Question 1 (evaluating investment projects) Generic Motors Corporation is planning to invest $100,000 in year zero (today) in new equipment. This investment is expected to generate net cash flows of $40,000 a year for the next 4 years (years 1-4). The salvage value after 4 years is zero. The discount rate (cost of capital) is 20% a year. Required: a) What is the net present value (NPV) of this project? NPV = $ Should the firm invest, based on NPV?...
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