![2 [15] A bridge has a cost to build of $2,000,000, has a cost of capital of 10% and will take 3 years to build. The present value of the tolls that the bridge will collect has been calculated at $3,500,000. a) What is the NPV? b) What is the IRR?](http://img.homeworklib.com/questions/52433580-30d0-11eb-bee6-efeceeee2f73.png?x-oss-process=image/resize,w_560)
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2 [15] A bridge has a cost to build of $2,000,000, has a cost of capital...
Argentina is considering constructing a bridge across the Rio de la Plata. The cost of the new bridge will be $700 milli...
Argentina is considering constructing a bridge across the Rio de la Plata. The cost of the new bridge will be $700 million (today). The bridge will require annual maintenance expenses of $10 million per year at the end of each year. The bridge is estimated to last 50 years. The country estimates the bridge will bring in $70 million in income each year at at the end of each year (for the life of the bridge) via tolls. Argentina has...
1. The most popular capital budgeting techniques used in practice to evaluate and select projects are...
1. The most popular capital budgeting techniques used in practice to evaluate and select projects are payback period, Net Present Value (NPV), and Internal Rate of Return (IRR). 2. Payback period is the number of years required for a company to recover the initial investment cost. 3. Net Present Value (NPV) technique: NPV is found by subtracting a project’s initial cost of investment from the present value of its cash flows discounted using the firm’s weighted average cost of capital....
Project A has an internal rate of return (IRR) of 15 percent. Project B has an...
Project A has an internal rate of return (IRR) of 15 percent. Project B has an IRR of 14 percent. Both projects have a cost of capital of 12 percent. Which of the following statements is most correct? Question 3 options: Both projects have a positive net present value (NPV). Project A must have a higher NPV than Project B. If the cost of capital were less than 12 percent, Project B would have a higher IRR than Project A....
Case Narrative: The firm’s tax rate is 35%. The company has $2,000,000 in annual sales, and...
Case Narrative: The firm’s tax rate is 35%. The company has $2,000,000 in annual sales, and annual fixed expenses of $1,100,000 and $500,000 in variable expenses. There was an initial investment in the firm of $1,500,000, which will be depreciated straight-line over 10 years. The project is expected to last 10 years. The firm has a Capital Structure as follows: The market value of the bonds is $2,000,000. The market value of the Preferred Stock is $1,000,000. The market value...
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six...
FastTrack Bikes, Inc. is thinking of developing a new composite road bike. Development will take six years and the cost is $ 209,000 per year. Once in production, the bike is expected to make $ 334,400 per year for 10 years. Assume the cost of capital is 10 %. a. Calculate the NPV of this investment opportunity, assuming all cash flows occur at the end of each year. Should the company make the investment? b. By how much must the...
Question 30 1.5 pts A firm with cost of capital of 10 percent is evaluating two...
Question 30 1.5 pts A firm with cost of capital of 10 percent is evaluating two mutually exclusive projects and constructed the following NPV profile: $100 NPV(A) .......NPV(B) 50 + Net Present Value “ ..... $0 ....sete 0% 5% 10% 15% 20% 25% 30% 35% 40% -$50 Dis count Rate True or false: Project B has the higher IRR and therefore would maximize shareholder wealth if selected over project A. O false O true
You are considering the following two projects and can take only one. Your cost of capital is 11....
You are considering the following two projects and can take only one. Your cost of capital is 11.4%. The cash flows for the two projects are as follows ($ million): Project Year 0 Year 1 Year 2 Year 3 Year 4 A −$98 $27 $29 $38 $51 B −$98 $51 $38 $29 $18 a. What is the IRR of each project? b. What is the NPV of each project at your cost of capital? c. At what cost of capital...
Q1. A bridge has been constructed between the mainland and an island. The total cost (excluding...
Q1. A bridge has been constructed between the mainland and an island. The total cost (excluding tolls) to travel across the bridge is expressed as C = 50 + 0.5V, where V is the number of veh/hr and C is the cost/vehicle in cents. The demand for travel across the bridge is V = 2500 -10C. (a) Determine the volume of traffic across the bridge. (b) If a toll of 25 cents is added, what is the volume across the...
You are considering opening a new plant. The plant will cost $97.4 million upfront and will...
You are considering opening a new plant. The plant will cost
$97.4 million upfront and will take one year to build. After that,
it is expected to produce profits of $28.5 million at the end of
every year of production. The cash flows are expected to last
forever. Calculate the NPV of this investment opportunity if your
cost of capital is 7.5%. Should you make the investment? Calculate
the IRR. Does the IRR rule agree with the NPV rule?
......
Question 3 5 pts Our firm's cost of capital is 10%. We are thinking about taking...
Question 3 5 pts Our firm's cost of capital is 10%. We are thinking about taking a project that gives a 10% rate of return. Which of the following statements are correct. The NPV of this project is zero. The firm will increase its value if it takes this project. The firm should not take this project because it will lose value if the project is taken. The IRR of the project is greater than the cost of capital. Two...
Question 30 1.5 pts A firm with cost of capital of 10 percent is evaluating two mutually exclusive projects and constructed the following NPV profile: $100 NPV(A) .......NPV(B) 50 + Net Present Value “ ..... $0 ....sete 0% 5% 10% 15% 20% 25% 30% 35% 40% -$50 Dis count Rate True or false: Project B has the higher IRR and therefore would maximize shareholder wealth if selected over project A. O false O true
Q1. A bridge has been constructed between the mainland and an island. The total cost (excluding tolls) to travel across the bridge is expressed as C = 50 + 0.5V, where V is the number of veh/hr and C is the cost/vehicle in cents. The demand for travel across the bridge is V = 2500 -10C. (a) Determine the volume of traffic across the bridge. (b) If a toll of 25 cents is added, what is the volume across the...
You are considering opening a new plant. The plant will cost
$97.4 million upfront and will take one year to build. After that,
it is expected to produce profits of $28.5 million at the end of
every year of production. The cash flows are expected to last
forever. Calculate the NPV of this investment opportunity if your
cost of capital is 7.5%. Should you make the investment? Calculate
the IRR. Does the IRR rule agree with the NPV rule?
......
Question 3 5 pts Our firm's cost of capital is 10%. We are thinking about taking a project that gives a 10% rate of return. Which of the following statements are correct. The NPV of this project is zero. The firm will increase its value if it takes this project. The firm should not take this project because it will lose value if the project is taken. The IRR of the project is greater than the cost of capital. Two...
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