Your firm is trying to decide whether to invest in a new project opportunity based on the following information. The initial cash outlay will total $750,000. The money will be payable immediately upon the start of the project. The company predicts that the project will generate a stream of earnings of $150,000, $100,000, $100,000, $300,000, and $500,000, per year, respectively, starting in Year 2. The required rate of return is 10%, and the expected rate of return is 3%.
1. What is the net present value of this project?
NPV = -750,000 + 150,000/(1.10) + 100,000/(1.10)2 + 100,000/(1.10)3 + 300,000/(1.10)4 + 500,000/(1.10)5
NPV = $59,504.44
So,
Net Present Value = $59,504.44
Your firm is trying to decide whether to invest in a new project opportunity based on...
Problem: Your firm is trying to decide whether to invest in a new project opportunity based on the following information. The initial cash outlay will total $750,000. The money will be payable immediately upon the start of the project. The company predicts that the project will generate a stream of earnings of $150,000, $100,000, $100,000, $300,000, and $500,000, per year, respectively, starting in Year 2. The required rate of return is 10%, and the expected rate of return is 3%....
Problem: Your firm is trying to decide whether to invest in a new project opportunity based on the following information. The initial cash outlay will total $750,000. The money will be payable immediately upon the start of the project. The company predicts that the project will generate a stream of earnings of $150,000, $100,000, $100,000, $300,000, and $500,000, per year, respectively, starting in Year 2. The required rate of return is 10%, and the expected rate of return is 3%....
DISCOUNT CASH FLOW AND NPV [3 POINTS Your firm is trying to decide whether to invest in a project opportunity based on the following information. The initial cash outlay will total $240,000 over two years. The firm expects to invest $200,000 immediately and the final $40,000 in one year's time. The company predicts that the project will generate a stream of earnings of $55,000, $105,000, $200,000, and $75,000 per year, respectively, starting in Year 2. The required rate of return...
1. Exercise 17.1 A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firm’s cost of capital is 12 percent. a) What is the internal rate of return (IRR) for the project? ( Answer-------------)(Hint:...
23 24 25 Suppose that you have $14,000 to invest and you are trying to decide between investing in project A or project B. If you invest in project A, you will receive a payment of $16,500 at the end of 2 years. If you invest in project B, you will receive a payment of $25,000 at the end of 11 years. Assume the annual interest rate is 5 percent and that both projects carry no risk. Instructions: Round your...
s the opportunity to take over a 47. A company has the opportunity to redevelopment project in an industrial area o No immediate investment is required, but it must the existing buildings over a four-year period the end of the fourth year, invest $2,400,000 for new construction. It will collect all revenues and pay all costs for a period of 10 years, at which time the entire project, and properties thereon, will revert to the city. The net cash flows...
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Jackson Company has a unique opportunity to invest in a two-year project in Australia. The project is expected to generate 1,300,000 Australian dollars (A$) in the first year and 2,500,000 Australian dollars in the second. Jackson would have to invest $1,500,000 in the project. Jackson has determined that the cost of capital for similar projects is 14%. What is the net present value of this project if the spot rate of the Australian dollar for the two years is forecasted to...
4.45. A company has the opportunity to take over a redevelopment project in an industrial area of a city. No immediate investment is required, but it must raze the existing buildings over a four- year period and at the end of the fourth year invest $2,400,000 for new construction. It will collect all revenues and pay all costs for a period of 10 years, at which time the entire project, and properties thereon, will revert to the city. The net...
Your company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $13,000 the first year, $15,000 the second year, $18,000 the third year, -$8,000 the fourth year, $25,000 the fifth year, $31,000 the sixth year, $34,000 the seventh year, and -$6,000 the eighth year. The project would cost the firm $67,100. If the firm's cost of capital is 12%, what is the modified internal rate of return?