A project requires an initial investment of $225,000 and is expected to generate the following net cash inflows: Year 1: $95,000 Year 2: $80,000 Year 3: $60,000 Year 4: $55,000 Required: Compute net present value of the project if the minimum desired rate of return is 12%.

A project requires an initial investment of $225,000 and is expected to generate the following net cash inflows: Year 1: $95,000 Year 2: $80,000 Year 3: $60,000 Year 4: $55,000 Required: Compute net present value of the project if the minimum desired rate of return is 12%.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

See similar textbooks

Related questions

Q: llaine invested Php 50,000 in a bond fund for 3 years that pay 2.75% annually. If interest will be…

A: The bonds are paid coupon payment each period but there is withholding tax to be paid on the coupon…

Q: Les Moore retired as president of Goodman Snack Foods Company but is currently on a consulting…

A: Part a and part b answers are given below(highlighted) and excel formulas are also included

Q: Compare the benefits and drawbacks to long-term vs. short-term leases from EITHER the point of view…

A: Lease refers to the contract between the parties in which one party agrees for renting an asset…

Q: The following data represents the prices (in R) of 50 items purchased by a shopper. Price (R)…

A: Mean, median, and mode A data set's mean (average) is calculated by adding all of the numbers in the…

Q: The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling…

A: Net Advantage to Leasing The financial advantages of a customer or business leasing an asset as…

Q: what are the advantages and drawbacks for digital Technology: How It Could Transform the…

A: Digital technology is referred as an usage of an advanced communication as well as information…

Q: Analyze the capital gains and the growth in share price for the five year period

A: Trend analysis is the change in the share price annually over a period. It helps to determine…

Q: GBATT has a capital need of $100 million to fund its operations. GBATT has an equity investor that…

A: Cost of capital refers to the amount of capital fund maintained as a portfolio of equity and debt.…

Q: more description on key strategies

A: The period from the start of the production process to the collecting of money from the sale of the…

Q: Which of the following would be considered examples of a short-term discount security? Select…

A: A debt security that gets matures in one year or less and is issued at the discount to the face…

Q: why a company would prefer to hedge over taking an insurance to minimize on risk

A: Company faces many kinds of risks during the operating of the company so company has to manage all…

Q: A Uniform series estimating the economic worth F(Future value) when A is given is calculated using:…

A: The worth of a series of recurrent payments at a specific future date, assuming a specific rate of…

Q: 4. (a) Treasury bond markets in New Zealand and the U.S. are dealer mar- kets. What are the pros and…

A: Dealer markets: A dealer market is a market in which they post the prices at which they would be…

Q: You've just done some analysis on a publicly traded company and some of your key findings are below.…

A: The Weighted Average Cost of capital: The weighted average cost of capital (WACC) is the sum of the…

Q: For the below questions use these rates that your bank has quoted you: EUR/USD: 1.0175 –…

A: Solution:- Cross rate means the rate of two foreign currencies of which direct quote is not given.

Q: MINICASE Garnett Jackson, the founder and CEO of Tech Tune-Ups, stared out the window as he finished…

A: Working Note #1 Analysis of given data: Snapshot:

Q: Route Canal Shipping Company has the following schedule for aging of accounts receivable: Age of…

A: Accounts receivable aging is a periodic report that categorizes a company's accounts receivable…

Q: for the last fifteen days?

A: A promissory note is a negotiable instrument. It is a document written and signed by the payer, it…

Q: Explain the difference between liquidated damages and penalities

A: Damage refers to the loss that results from some injury to a person, company, property, or…

Q: You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner…

A: Given, The loan amount is $5,100,000. The rate of interest is 7%

Q: José lent Antonio 10 new pens and 20 new watches on date zero, which on that date cost $50.00 and…

A: The real interest rate is the rate that is charged by the banks on borrowings. This rate is used by…

Q: To attend school, Zahra deposits $600 at the end of every 6 months for five and one half years. What…

A: Given: Particulars Amount Amount(PMT) $600 Interest rate 3%

Q: Which one of the following is an "OIS" Interest Rate Swap? Group of answer choices A. An agreement…

A: An OIS Interest rate swap is where the one of the underlying exposure is Overnight interest. OIS…

A: As given : The fund manager outperformed the CAPM by 4% per year for last 30 years. But the charges…

Q: Case: Two months ago, Lisa was honorably discharged from the Air Force where she spent four years…

A: Loans and mortgages are given on the basis of capacity to pay back the loan that is based on monthly…

Q: A $300,000 house in Hamilton was purchased with a down payment of 20.00% of its value and a 20 year…

A: The amount of down payment = 20% x house value = 0.20 x 300,000= $60,000 Loan Amount = House value -…

Q: What is the (a) present value and (b) compound interest earned for 3 years and 9 months of P84,500…

A: Given, The future amount is P84,500 Rate is 20% Term is 3 years and 9 months

Q: Two treasury bonds (with semi-annual coupons) are traded. The first bond matures in six months, has…

A: Bond 1: Annual coupon rate = 6% Semi-annual rate = 6%/2 = 3% Dirty price “P” = $99.50 Let Face Value…

Q: j. Bonds Payable - Series 1 On January 1, 2015, Hazer issued $400,000 12% 10-year bonds. Interest is…

A: Bond refers to the borrowing security issued by the company to raise funds from the market by making…

Q: Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is…

A: Arbitrage profit Arbitrage is an investment strategy used by investors that involves buying and…

Q: PROBLEM 6 10 K Reporting CARNIVAL CRUISE LINES refer to: Exhibit 13 Selected Financial…

A: As per our guidelines we are supposed to answer only one question (if there are multiple questions…

Q: Calculate the repayments required to fully repay $100 000 borrowed at 6%p.a. for 10 years with…

A: Borrowed amount "PV" is $100,000 Time period is 10 years Total number if quarters "N" are 10×4=40…

Q: a) The following Capital structure is extracted from Mirza Corporation Sdn Bhd a multinational…

A: Weighted average capital(WACC) structure is the average capital structure of the company. It can be…

Q: You have valued a business, using discounted cash flow models, at $250 million for a private sale.…

A: A) Introduction:- According to the idea of the regression coefficient, regression can take the form…

Q: In a company, the development and project team faced two opportunities, and evaluated each…

A: First let us calculate the weighted scores of opportunity A and B given the weights in each…

Q: Pretend that you are saving up for a down payment on a car or house. Pretend that we get an…

A: Future value of a present amount Future value is always more than the present amount, deposited in…

Q: Assume the company has no existing cash pre deal. LTM EBITDA at entry Entry and exit EV/EBITDA…

A: In a leveraged buyout transaction, sale and purchase happened at two different price points. The…

Q: General Computers Inc. purchased a computer server for $70,000. It paid 35.00% of the value as a…

A: Purchase of Computer Server = $70,000 Down payment = $24,500 (being 35% of $70,000) A loan is taken…

Q: Q.5 What was the bond' s coupon On 11/18/2021 the China's Ministry of Finance sold the ¥2B worth of…

A: The coupon rate is the interest rate paid on bonds. It is a fixed rate paid on a periodic basis to…

Q: In 1975 a 5% coupon bond with face value 1000 has 4 years to maturity. Current shorts are 4% and…

Q: What are the different types of expected return and related risk, for individual assets and for…

A: The different types of expected return and related risk, for individual assets and for portfolios as…

Q: How do you show the net payoff function of a long strap and a short strip

A: Net payoff means profit and loss from an option position held by an investor. It can be long, short…

Q: $510 monthly for 60 months. What are the total amount financed and the total finance charge that…

A: Information Provided: Car cost = $42,500 Down payment = $16,000 Monthly payments = $510 Number of…

Q: Approximately, what is the value of (P) if A=240, n=4 years, and i= 3% per year? a. 1071 b. 1196 741…

A: Annuity payment (A) = 240 Period (n) = 4 years Interest rate (i) = 0.03 or 3% Present value (P) = ?…

Q: Green Thumb Landscaping wants to build a $145,000 greenhouse in 2 years. The company sets up a…

A: We will use the concept of time value of money here. As per the concept of time value of money the…

Q: ou have invested 7 million dollars for a horizon of 24 months. You will be paid interest at 7.80%…

A: Future value refers to the value of the current asset on some future date based on the growth…

Q: Applied Nanotech is thinking about introducing a new surface cleaning machine. The engineering…

A: Real Options and the option to abandon: Options provide their holders with the right or obligation…

Q: Kohwe Corporation plans to issue equity to raise $50 million to finance a new investment. After…

A: As per the given information: Investment amount - $50 millionFree cash flows - $10 millionShares…

Q: You are chairperson of the investment fund for the Continental Soccer League. You are asked to set…

A: To calculate the amount to be contributed in each interval, we have to find the future value of…

Q: At 21 February 2018, the US Government could borrow at an annual 10-year yield of 2.89%. At that…

A: Since you have posted multiple questions, as per answering guidelines we shall be solving first…

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

A project requires an initial investment of $225,000 and is expected to generate the following net cash
inflows:
Year 1: $95,000
Year 2: $80,000
Year 3: $60,000
Year 4: $55,000
Required: Compute net present value of the project if the minimum desired rate of return is 12%.

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 3

VIEW

Step by step

Solved in 3 steps with 1 images

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

Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: If the discount rate is 12%, compute the NPV of each project.
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $150,000 and the center expects an annual net cash flow of $20,000 per year, what is the payback period?
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?
Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?