Answered: A project that provides annual cash…

A project that provides annual cash flows of $10,000 for 10 years costs $80,000 today. At what discount rate would you be indifferent between accepting the project and rejecting it?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 16EA: Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in...

See similar textbooks

Related questions

Q: An investment project has annual cash inflows of $4,100, $5,000, $6,200, and $5,400, for the next…

A: To Find: Discounted payback period

Q: A project that will provide annual cash flows of $3,100 for nine years costs $10,400 today. At what…

A: Internal Rate of Return: The Internal Rate of Return is the discount rate at which the Net Present…

Q: heinhardt Wig Company is considering a project that has the cash flows: Year Project Cash…

A: Discounted payback period = years before discounted payback period + (cumulative cash flow in the…

Q: A project that costs $4,000 to install will provide annual cash flows of $1,300 for each of the next…

A: Net present value is the present value of the future cash flows at a specified time period and…

Q: Project K costs $75,000, its expected cash inflows are $15,000 per year for 10 years, and its WACC…

A: Calculate the payback period as follows: Payback period = Initial investment / Cash inflows

Q: You invest $12,650 in a project today. You expect to receive cash flows $3,200, $5,160, $4,288,…

A: Discounted payback period is calculated as number of years required for a project to recover the…

Q: An Investment project has annual cash inflows of $4,500, $3,800, $5,000, and $4,200, for the next…

A: The Payback period of the company is providing information as in what period the amount of initial…

Q: Omantel is installing new equipment at a cost of 250000 OMR. Expected cash flows from this project…

A: Capital budgeting is a financial process that analyses investment in a capital project. This process…

Q: A project will cost $20,000 today and yield cash inflows of $15,000 and $25,000 at the end of Year 1…

A: Given:

Q: A project that provides annual cash flows of $2,250 for 9 years costs $9,300 today. a) At a required…

A: A project has an annual cash flow (CF) of $2250 for a period (n) of 9 years. Its initial investment…

Q: The Square Box is considering two independent projects, both of which have an initial cost of…

A: Information Provided: Initial cost = $18,000 Required return = 12% Term = 3 years

Q: An investment project costs $50,000 and has annual cash flows of $3,500 for 20 years. What is the…

A: Discounted Payback period refers to one of the modern techniques which measure the time that the…

Q: A project that provides annual cash flows of $72,000 for 6 years costs $263,000 today. If the…

A: Initial Cost = 263,000 Annual Cash Flow = 72,000 N = 6 years Required Return = 14%

Q: A project that provides annual cash flows of $16,800 for nine years costs $74,000 today. What is the…

Q: An investment project costs $19,000 and has annual cash flows of $5,100 for six years. a. What is…

A: The payback period is one of the techniques that is used by the management in order to evaluate…

Q: A project that provides annual cash flows of $12,600 for 12 years costs $67,150 today. At what rate…

A: The rate of return which gives an indifference point is called the internal rate of return. It is…

Q: Project K costs $60,000, its expected cash inflows are $15,000 per year for 8 years, and its WACC is…

A: a) Computation of NPV:

Q: Grayson Company is considering a purchase of equipment that costs $62,000 and is expected to offer…

A: Capital Budgeting Decision: In most cases, a capital budgeting choice is either a yes or no decision…

Q: Project P has a cost of $1,000 and cash flows of $300 per year for three years plus another $1,000…

A: A method of capital budgeting that helps to evaluate the time period a project requires to cover its…

Q: Project K costs $50,000, its expected cash inflows are $11,000 per year for 11 years, and its WACC…

Q: Project L costs $55,903.24, its expected cash inflows are $12,000 per year for 10 years, and its…

A: IRR is the rate at which NPV of the project is zero.

Q: A project that will provide annual cash flows of $2,600 for nine years costs $10,700 today? a. At a…

A: Cost of Project is $10,700 Cash flow per year is $2600 Time period is 9 years To Find: NPV at…

Q: With an initial cost of $100,000, a WACC of 15%, and subsequent cash flows for years 1, 2, 3 of…

A: Payback Period = Years before full recovery + (unrecovered cost at the start of the year/ cashflow…

Q: project's discounted payback period?

A: Discounted Payback Period: Discounted Payback period is the period of time in which the investment…

Q: An investment project provides cash inflows of $950 per year for eight years. a. What is the project…

A: Payback period is the period in which the initial investment is recovered by the entity. Shorter the…

Q: What is the net present value of a project

A: While choosing which investment project will be undertaken, different investment appraisal…

Q: What is the NPV of a $45,000 project that is expected to have an after-tax cash flow of $14,000 for…

A: Excel Spreadsheet: Excel Workings:

Q: Tiger Trucking Company is considering a project that will produce cash inflows of $18,000 at the end…

A: Given Information: Cash inflows at the end of Year 1 - $18,000 Cash inflows at the end of Year 2 -…

Q: An investment project costs $10,000 and has annual cash flows of $2,950 for six years. What is the…

A: Discounted Pay-Back (DPB) period shows time in which discounted value of inflows completely recovers…

Q: An investment project costs $10,000 and has annual cash flows of $2,920 for six years. a. What…

A: The discounted payback period is a method used in the capital budgeting process to determine the…

Q: A project that provides annual cash flows of $16,300 for eight years costs $69,000 today. What is…

A: NPV is the present value of future cash flow with respect to the time value of money. “Since you…

Q: Carter Company is considering a project with an initial investment of $600,500 that is expected to…

A: Net Present Value- It is the difference between the present value of cash inflows and the present…

Q: An investment project provides cash inflows of $735 per year for eight years. a. What is the…

A: A method of capital budgeting that helps to evaluate the time period a project requires to cover its…

Q: Chance, Inc. is considering a project with an initial cost of $1 million. The project will not…

A: The question is based on the concept of capital budgeting, which can be calculated by help of net…

Q: Project K costs $30,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is…

Q: An investment project costs $15,000 and has annual cash flows of $4,300 for six years. What is the…

A: Discounted payback period is a capital budgeting approach that helps in determining the total time…

Q: A project that will provde annual cash flows of $2,450 for nine years costs $10,100 today. a. At a…

A: a) Initial Investment=$10100 Annual Cash Flow=$2450 Required Rate of return= 9% NPV of the…

Q: An investment project costs $10,000 and has annual cash flows of $2,940 for six years. a. What…

A: The discounted payback period is a forecast of the time it will take to fully recover the initial…

Q: A project has an initial cost of $35,000 and produces cash flows of $20,000, $15,000, $10,000, and…

A: Net Present Value is the difference between the current value of cash inflow and cash outflow for a…

Q: Big Steve’s, makers of swizzle sticks, is considering the purchase of a new plastic stamping…

A: Initial outlay (I) = $105000 Annual cash inflow (A) = $17000 n = 9 years r = 9%

Q: A project that provides annual cash flows of $17,300 for nime years costs $79,000 today. (SHOW ALL…

A: The required rate of return or required return is the amount of return that an investor anticipates…

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 that provides annual cash flows of $10,000 for 10 years costs $80,000 today. At what discount rate would you be indifferent between accepting the project and rejecting it?

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 with 2 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

Project X costs $10,000 and will generate annual net cash inflows of $4,800 for five years. What is the NPV using 8% as the discount rate?
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?
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?
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?
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.
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?
Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce annual net cash flows of $21,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether Bouvier should invest in the grill.
Project Y cost $8,000 and will generate net cash inflows of $1,500 in year one, $2,000 in year two, $2,500 in year three, $3,000 in year four and $2,000 in year five. What is the NPV using 8% as the discount rate?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company’s cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (plane)? What is the equivalent annual annuity for each plane?
Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years. What is the NPV using 8% as the discount rate?