a. Calculate the following Periodic Total Returns on a 5-year investment. To your calculations, assume that you have selling costs of 5% Year NCF (€) Market Value (€) Total Return 95,000 95,000 1 10,000 98,000 5,000 100,000 8,000 101,000 4 12,000 103,000 5 135,000 117,000 b. If the quarterly Income Return is 2.2% and the Quarterly Capital Return is 0.4%, calculate the Annual Total Return of the investment 2.

a. Calculate the following Periodic Total Returns on a 5-year investment. To your calculations, assume that you have selling costs of 5% Year NCF (€) Market Value (€) Total Return 95,000 95,000 1 10,000 98,000 5,000 100,000 8,000 101,000 4 12,000 103,000 5 135,000 117,000 b. If the quarterly Income Return is 2.2% and the Quarterly Capital Return is 0.4%, calculate the Annual Total Return of the investment 2.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 20EA: Towson Industries is considering an investment of $256,950 that is expected to generate returns of...

See similar textbooks

Similar questions

Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?
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?
Towson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. What Is the Investments internal rate of return?
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?
Giorgio Co. is looking at an investment project with an internal rate of return of 10.8%. The initial outlay for the investment is $90,000. The hurdle rate or minimum acceptable rate of return is 10.2%.
You are looking at an investment that has an effective annual rate of 14 percent. (show answers and excel formula equations) a. What is the effective semiannual return? b. What is the effective quarterly return? c. What is the effective monthly return?
An investor receives $1,050 in 6 months in return for an investment of $1,000 now. What is the equivalent annual nominal return on this investment with continuous compounding? a. 10.00% b. 4.88% c. 9.76%