ZuoTi.Pro
Question

QUESTION 6 What is the rate of return for capital investment project that will have the cash flows described in table below?

do not use excel and show all work
math   Statistics-And-Probability   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

ANSWER:

Given that,

Life = 5 years

The formula for the net present worth (PW) of the project is given as

PW(i) = – 10,500 + 2,000(P/F, i, 1) + 2,000(P/F, i, 2) + 4,000(P/F, i, 3) + 4,000(P/F, i, 4) + 4,000(P/F, i, 5)

PW(i) = – 10,500 + 2,000/(1 + i)1 + 2,000/(1 + i)2 + 4,000/(1 + i)3 + 4,000/(1 + i)4 + 4,000/(1 + i)5

When i =10%

PW(10%) = – 10,500 + 2,000(P/F, 10%, 1) + 2,000(P/F, 10%, 2) + 4,000(P/F, 10%, 3) + 4,000(P/F, 10%, 4) + 4,000(P/F, 10%, 5)

PW(10%) = – 10,500 + 2,000/(1 + 0.1)1 + 2,000/(1 + 0.1)2 + 4,000/(1 + 0.1)3 + 4,000/(1 + 0.1)4 + 4,000/(1 + 0.1)5

PW(10%) = – 10,500 + (2,000 × 0.9091) + (2,000 × 0.8264) + (4,000 × 0.7513) + (4,000 × 0.6830) + (4,000 × 0.6209)

PW(10%) = – 10,500 + 1,818.2 + 1,652.8 + 3,005.2 + 2,732 + 2,483.6

PW(10%) = – 10,500 + 11,691.8

PW(10%) = $1,191.8

When i =15%

PW(15%) = – 10,500 + 2,000(P/F, 15%, 1) + 2,000(P/F, 15%, 2) + 4,000(P/F, 15%, 3) + 4,000(P/F, 15%, 4) + 4,000(P/F, 15%, 5)

PW(15%) = – 10,500 + 2,000/(1 + 0.15)1 + 2,000/(1 + 0.15)2 + 4,000/(1 + 0.15)3 + 4,000/(1 + 0.15)4 + 4,000/(1 + 0.15)5

PW(15%) = – 10,500 + (2,000 × 0.8696) + (2,000 × 0.7561) + (4,000 × 0.6575) + (4,000 × 0.5718) + (4,000 × 0.4972)

PW(15%) = – 10,500 + 1,739.2 + 1,512.2 + 2,630 + 2,287.2 + 1,988.8

PW(15%) = – 10,500 + 10,157.4

PW(15%) = -$342.6

Therefore the rate of return of the P5 is

i = 10% + [(1,191.8 – 0)/(1,191.8 – (– 342.6))] × 5%

i = 10% + (1,191.8/1,534.4) × 5%

i = 10% + (0.77 × 5%)

i = 10% + 3.8

i = 13.8%

0 0
Add a comment
Know the answer?
Add Answer to:
do not use excel and show all work QUESTION 6 What is the rate of return...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • EXCEL SOLUTION NEEDED: EXCEL FORMULA ONLY PLEASE The internal rate of return (IRR) is the rate...

    EXCEL SOLUTION NEEDED: EXCEL FORMULA ONLY PLEASE The internal rate of return (IRR) is the rate of return for a series of cash flows that results in a zero NPV. Excel's IRR function easily computes the IRR for a series of cash flows. What is the IRR for the project with the following cash flows? t Cash flow 0 $              (30,000) 1                     8,000 2                   10,000 3                   11,000 4                   17,000 5                   12,000 IRR:

  • please solve in the word format Answer the question. Calculate the rate of return of the...

    please solve in the word format Answer the question. Calculate the rate of return of the 3-year project described below using the ERR method, assuming 8% reinvestment rate. Use the calculated rate of return of the project to determine whether the project should be accepted, assuming investors' opportunity cost of capital is 15%. The project requires $800,000 initial investment, and brings in net cash flows equal to $400,000 in year 1, 5500,000 in year 2, and $600,000 in year 3....

  • Please use Excel to solve! Ne Present Value and Other Capital Budgeting Measures 5. Consider a...

    Please use Excel to solve! Ne Present Value and Other Capital Budgeting Measures 5. Consider a project that has the following cash flows: initial cash flow (t-0) --$100,000; cash flows years 1 to 5 (t-1-5) - $10,000 per year, cash flows years 6 to 10 (t-6-10) - $20,000 per year. If the required return on the project is 6%, calculate the following: a. Internal Rate of Return (IRR)? b. Net Present Value (NPV)? c. Profitability index (PI)? d. Payback period?

  • MUST SHOW ALL CORRECT EXCEL FORMULAS XUR 5 + Calculating NPV - Excel FORMULAS DATA REVIEW...

    MUST SHOW ALL CORRECT EXCEL FORMULAS XUR 5 + Calculating NPV - Excel FORMULAS DATA REVIEW FILE HOME INSERT PAGE LAYOUT VIEW Sign in Calibri 11 - A A 23 Paste BIU E! - A % Alignment Number Conditional Format as Cell Formatting Table Styles Styles Cells Editing Clipboard Font . A1 fx A B C D E F G H 1 2 Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of...

  • Suppose your firm would like to earn 10% yearly return from the following two investment projects...

    Suppose your firm would like to earn 10% yearly return from the following two investment projects of equal risk.(the table is attatched in the form of image) (a)​If only one project can be accepted, based on the NPV method which one should it be? Support your answer with calculations. ​​​​​​(9 marks) (b)​Suppose there is another four-year project (Project C) and its cash flows are as follows: ​ C0 = –$8,000 ​C1 = $2,000 ​C2 = $2,500 ​C3 = $2,000 ​C4...

  • Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment...

    Mastery Problem: Net Present Value and Internal Rate of Return Part One Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that use present values are (1) Net present value method (NPV) and (2) Internal rate of return (IRR) method. Methods That Use Present Values Of the two capital investment evaluation methods, a defining characteristic NPV and IRR is that they consider  the time value of money. This means that money tomorrow is worth less than  money today....

  • Consider the following cash flows (see the attached Excel sheet) and answer the following questions. Show...

    Consider the following cash flows (see the attached Excel sheet) and answer the following questions. Show your work in Excel. a) What is the net present value (NPV) if the opportunity cost of cost of capital is 10%? b) Add an outflow of $2000 at time 0 and lower the opportunity cost of capital to 6%. Now, what is the net present value? B A Parta) Year Cash Flow $2,000 $2,000 $1,500 $2,500 $4,000 5 Cost of Capit 10% NPV...

  • 6 pts Question 17 What is Project A's Modified Internal Rate of Return with a WACC...

    6 pts Question 17 What is Project A's Modified Internal Rate of Return with a WACC of 6.75%? YEAR CASH FLOWS Project A Project B 0 -$1050 -$1050 1 675 360 2 650 360 3 360 4 360 HTML Editora BIVA-AI EE311 x X, DE - 2 VE GODT 12pt Paragraph

  • Question 4 (25 points) For the cash flow series below, calculate the external rate of return, using the return on i...

    Question 4 (25 points) For the cash flow series below, calculate the external rate of return, using the return on invested capital approach with a reinvestment rate of 14% per year and MARR of 12% per year. Year 1 0 1 Cash Flow (8) +4,000 -3,000 +2,000 - 7,000 +3,200

  • MUST SHOW CORRECT EXCEL FORMULAS. ONLY ANSWER HIGHLIGHTED PORTIONS. XUR 5 + Calculating NPV - Excel...

    MUST SHOW CORRECT EXCEL FORMULAS. ONLY ANSWER HIGHLIGHTED PORTIONS. XUR 5 + Calculating NPV - Excel FORMULAS DATA REVIEW FILE HOME INSERT PAGE LAYOUT VIEW Sign in Calibri 11 - A A 23 Paste BIU E! - A % Alignment Number Conditional Format as Cell Formatting Table Styles Styles Cells Editing Clipboard Font . A1 fx A B C D E F G H 1 2 Quad Enterprises is considering a new three-year expansion project that requires an initial fixed...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT