7.1. How many years will it take for an investment to double in value, if it earns interest at a rate of8.5 p.a., compounded quarterly?7.2. A company purchased machinery for R500 000. After 5 years, the machinery was sold forR180 000 and new machinery was bought.7.2.1. Calculate the rate depreciation of the old machinery over 5 years using the reducing-balancemethod.7.2.2. The rate of inflation for the cost of the new machinery is 6.3% p.a./over the 5 years. What willthe new machinery cost at the end of 5 years?7.2.3. The company set up a sinking fund and made the first payment into this fund on the day theold machinery was bought. The last payment was made three months before the new machinerywas purchased at the end of 5 years. The interest earned on the sinking fund was 10.25% p.a.compounded monthly, the money from the sinking fund and the R180 000 from the sale of the oldmachinery was used to pay for the new machinery.Calculate the monthly payment into the sinking fund.

Thanks for the question Bartleby's Guideline “Since you have asked multiple question, we will solve…

Answered: 7.1. How many years will it take for an…

7.1. How many years will it take for an investment to double in value, if it earns interest at a rate of 8.5 p.a., compounded quarterly?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 1PROB

See similar textbooks

Related questions

Q: can be replaced by a loan at an interest rate of 6% at a cost of 8% of the outstanding loan amount…

A: Loan payments: These represent payments made by the borrower to the lender for amortizing the loan…

Q: A P150,000 Loan bears an interest of 10% compounded quarterly. To be repaid thru installments at the…

A: Annuity due can be defined as a series of equal payments at equal intervals of time, with the…

Q: moderale curent asset inveatment policy, but it is now considering a change, perhaps to a restricted…

A: Answer- 1. Restricted policy where current assets are 20% of sales. Sales = $400,000 Current…

Q: Identify and explain the various types of financial instruments used in optimal risky portfolio…

A: Optimal risky portfolio: The Optimal Risky Portfolio is the portfolio on the efficient frontier with…

Q: Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is…

A: WACC is the average cost of capital which can be calculated the multiplying the weight of securities…

Q: Melvin availed a loan from a bank that gave him an option to pay Php 14,600 monthly for 2 years. Th-…

A: Present value of all monthly payments considering the interest rate and period of payment would give…

Q: You plan to invest in either a mutual fund X or mutual fund Y. The following information about the…

A: Two asset portfolio expected return: The anticipated return on an investment is the value assigned…

Q: Jefferson's recently paid an annual dividend of $2 per share. The dividend is expected to decrease…

A: The Gordon growth model is used to determine the stock price based on a future series of dividends…

Q: Advanced Products is considering the purchase of a computer-aided manufacturing system that requires…

A: Solution:- Payback Period is the time period when initial Investment of project gets recovered from…

Q: Consider the financial ratios of ABK Bank and the average ratios of peer banks based on 2015…

A: By analyzing financial statements such as the balance sheet and income statement, ratio analysis is…

Q: In a public corporation, the agency conflict is: O the exploitation of the workers by the owners the…

A: Agency Conflict refers to Conflict between the agents and owners of the company Agents refers to…

Q: 5151.5, should not the 0.5 go in and become 5152?

A: In the given case, when decimal is greater than or equal to 0.5, then it is rounded off to next…

Q: What is the required return on common stock using CAPM? % Use the retention growth equation to…

A: Required Rate of Return: It represents the expected return on common stock from the investors. It…

Q: What is the net cash flow to the firm in year 4

A: Net cash flow can be defined as the net amount of cash and cash equivalents transferred in and out…

Q: Eric has an option position on Langdon stock that results in a zero dollar payoff when the stock…

A: Purchasing a put option means the right to sell at certain security only if stock price is less than…

Q: Compute the value of Murphy’s Moving Company bonds if investors' required rate of return is 4.5%.

A: The value of the bond is the current price of the bond. It is the present value of the bond's coupon…

Q: Discuss why budgets are so important for all organizations. Describe some advantages and…

A: Budgets are an indispensable part of business organizations because they assist business…

Q: Luis won the lottery; however, the lottery company gave him the following two options to receive his…

A: Given, Amount earns 4.5% p.a simple Interest So, Per month Interest = 4.5%/12 = 0.375% Two months…

Q: An investment of $1,600,000 will return $320,000 per year for 6 years. Should the investment be…

A: Payback period refers to the time period within which a certain investment may be recovered. It is a…

Q: Private banking is the provision of wealth management services to high net worth individuals who…

A: High net-worth individuals are individuals having investible amounts exceeding a specified limit.…

Q: Orono Corp.'s sales last year were $575,000, its operating costs were $362,500, and its interest…

A: As per formula Times interest earned (TIE) ratio = (Sales-Operating cost)/Interest expenses Where…

Q: Blue Bell stock is expected to return 23 percent in a boom, 16 percent in a normal economy, and lose…

A: Expected Return (E(X)) = 0.23*0.05 + 0.16*0.90 - 0.32*0.05 = 0.0115 + 0.144 - 0.016 = 0.1395

Q: The most important feature of Limited Liability Companies is that it provides limited liability for…

A: limited liability company benefits the members provide limited liability.

Q: Q1: In two years, a bond will start paying out an annual annuity of 20:-, after which the annuity…

A: GivenFirst coupon payment will occur at the end of 2nd year for amount 20 Thereafter it will…

Q: A 7 year property class asset was purchased for $115,000. The owner took depreciation charges using…

A: Depreciation: A depreciation is a non-cash expenses for the company. The depreciation expenses is…

Q: The FC of asset is P710 000 while its salvage is P95 000. What is the depreciation charge during the…

A: Sum of digits = 1+ 2 + 3 + 4 + 5 + 6 + 7 + 8+ 9 + 10 = 55 Third Year Depreciation = ( Asset Value…

Q: An investor is deciding whether to purchase 5,000 ABC Inc. shares which has an EPS ratio of P75. He…

A: Price which the investor should pay should be the price as per the PE ratio of the industry minus…

Q: Carefully compare and discuss the concept of margins in forwards/futures markets and options…

A: Margin is the amount that is deposited as a security in the derivative contracts.

Q: WHAT IS THE ADVANTAGE OF offshore trust?

A: Offshore trust companies can be defined as those companies which help customers with a high net…

Q: Explain, in no more than 100 words, how investors’ degree of risk tolerance influences the choice of…

A: Expected Rate of return = 12% Standard Deviation = 16%

Q: A risky portfolio has an expected return of 17.27% and a standard devia of 24.83%. The risk-free…

A: The expected rate of portfolio is weighted average rate of return of individual stocks in the…

Q: Suppose you purchased a stock a year ago. Today, you receive a dividend of $12 and you sell the…

A: Buying Price = ( Selling Price + Dividend)/(1 + Return)

Q: John wants to buy a property for USD 105,000 and once on 80% loan for USD 84000. A lender indicates…

A: Property Price $ 1,05,000.00 Loan 80% Loan Value $ 84,000.00 loan origination fee…

Q: Please explain about fintech and give some examples in general.

A: FinTech: Fintech is a word applied to define financial technology, an industry comprising any…

Q: Construct a table showing the amortization of the loan.

A: Amortization: It is the process of paying the loan amount in periodic payments by the borrower to…

Q: Long Life Floors is expected to pay an annual dividend of $8 a share and plans on increasing future…

A: Value of stock is Sum of all dividend paid discounted at cost of capital

Q: contract of sale

A: The answer is option A. Valid. The contract rendered here is a valid contract.

Q: A 12,000 5% bond with quarterly coupon is priced to yield 5% and redeemable at 110 at the end of 8…

A: A Bond refers to an instrument that represents the loan being made by the investor to the company…

Q: Which of the following statements is true regarding business plans: A. A corporation is the…

A: Business plan is a documented strategy that sets out the basic idea underlying a business and its…

Q: 1. Suppose for an investment of $500, you will receive a monthly payment of $2 for perpetuity…

A: Investment = Present Value = 2*12*1/i 500 = 24/i i = 4.80% p.a. Calculating monthly effective…

Q: Suppose you require a 10% return on your investments while purchasing a s y trading at $50. The…

A: Return on investment, as the name indicates, is the return or the profit that accrues to you from…

Q: 9. A project has an NPV of $12 632 when its cost of capital is 12 percent, and an NPV of $6 935 when…

A: To evaluate different projects, we make use of capital budgeting tools. Some of the capital…

Q: Suppose, a passive portfolio, that is, one invested in a risky portfolio that mimics the DSE Broad…

A: Ans: (i) Currently the client has invested in active portfolio. So his expected return is 13% and…

Q: A man makes a payment of 1450 at the beginning of every month on a bank that offers 6% interest. How…

A: To calculate the amount of loan we will use present value of annuity due formula that is as follows:…

Q: Sue is a customer account representative for ABC Company. She recently acquired several new accounts…

A: A scenario is defined as a set of events that are expected to occur. This is an example of a…

Q: Which of the following bank services involves financial derivatives? Credit services O Transaction…

A: A derivative is an agreement between two or more parties in which the value is determined by an…

Q: Automatic dividend reinvestment O is a requirement of all mutual fund companies. compounds share…

A: Dividends are the distribution of a portion of a company's earnings, as determined by the company's…

Q: Which of the following correctly characterizes the risks in merger arbitrage? O A. The strategy is…

A: Merger arbitrage is the process where an investor trades in the stock of the companies involved in…

Q: Is the market price per share Net income Less Preferred Dividends

A: Yes. Market Price per share is already given in the question and NET INCOME- Preferred Dividends is…

Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

100%

7.1. How many years will it take for an investment to double in value, if it earns interest at a rate of
8.5 p.a., compounded quarterly?
7.2. A company purchased machinery for R500 000. After 5 years, the machinery was sold for
R180 000 and new machinery was bought.
7.2.1. Calculate the rate depreciation of the old machinery over 5 years using the reducing-balance
method.
7.2.2. The rate of inflation for the cost of the new machinery is 6.3% p.a./over the 5 years. What will
the new machinery cost at the end of 5 years?
7.2.3. The company set up a sinking fund and made the first payment into this fund on the day the
old machinery was bought. The last payment was made three months before the new machinery
was purchased at the end of 5 years. The interest earned on the sinking fund was 10.25% p.a.
compounded monthly, the money from the sinking fund and the R180 000 from the sale of the old
machinery was used to pay for the new machinery.
Calculate the monthly payment into the sinking fund.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Taos Productions bought a piece of equipment for $79,860 that will last for 5 years. The equipment will generate net operating cash flows of $20,000 per year and will have no salvage value at the end of its life. What is the internal rate of return?
Referring to PA7 where Kenzie Company purchased a 3-D printer for $450,000, consider how the purchase of the printer impacts not only depreciation expense each year but also the assets book value. What amount will be recorded as depreciation expense each year, and what will the book value be at the end of each year after depreciation is recorded?
If an asset declines in value from 5,000 to 3,500 over nine years, what is the mean annual growth rate in the assets value over these nine years?
George Company has the opportunity to purchase an asset that costs $40,000. The asset is expected to increase net income by $10,000 per year. Depreciation expense will be $5,000 per year. Based on this information the payback period is: A) 4 years. B) 2.5 years. C) 2.67 years. D) 8 years.
An asset was purchased for P66,000. The asset is expected to last for 6 years and will have a salvage value of P16,000. The company expects the income before tax to be P7,200 and the tax rate of the company is 30%. What is the average return on investment (accounting rate of return)? choices: 17.6% 12.3% 7.6% 10.9%
An economic analysis is being performed in real (not actual) dollars. The company’s combined MARR is 10%, and the inflation rate is 4%. The asset has a first cost of $10,000. It will be depreciated as MACRS 3-year property using rates of 33.33%, 44.45%, 14.81%, and 7.41%. What depreciation amount will be shown in year 3 of the analysis?
A company buys a machine for $69,000 that has an expected life of 7 years and no salvage value. The company anticipates annual income of $3,300, with the cash flows to be received evenly throughout each year. What is the accounting rate of return?
An asset has an initial capital investment of $4 million. Its terminal value at the end of an eight-year life is –$1 million (i.e., it costs more to dispose of this asset than it is worth in the marketplace). The MARR is 10% per year. What is the capital recovery amount of this asset?
NUBD Co. purchase a machine for P180,000, which will be depreciated on the straight-line basis over a five year period with no salvage value. The related cash flow from operations, net of income taxes, is expected to be P45,000, a year. Assume that NUBD’s effective income tax rate is 40% for all years.What is the accounting rate of return on the initial increase in required investment?
5. An equipment costing P250,000 has an estimated life of 15 years with a book value of P30,000 at the endof the period. Compute the depreciation charge and its book value after 10 years using declining balancemethod. WITH CASH FLOW DIAGRAM
A firm has earnings of $8,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $6,000. The equipment will be depreciated over five years, and the firm pays 30 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4 to answer the questions. Round your answers to the nearest dollar. Modified Accelerated Straight-line Cost Recovery Year 2 Year 5 Year 2 Year 5 Earnings before depreciation and taxes $ $ $ $ Depreciation expense Earnings after depreciation Taxes (30% tax rate) Net earnings $ $ $ $ Cash flow $ $ $ $
An asset was purchased for P66,000. The asset is expected to last for 6 years and will have a salvage value of P16,000. The company expects the income before tax to be P7,200 and the tax rate of the company is 30%. What is the average return on investment (accounting rate of return)? Group of answer choices 17.6% 12.3% 7.6% 10.9%