Equipment that costs $15,000 and generates a $5,000 annual return would appear to "pay back" on the investment in 3 years. If economists expect inflation to rise 30 percent annually, what will be the estimated return value at the end of the first year?

Equipment that costs $15,000 and generates a $5,000 annual return would appear to "pay back" on the investment in 3 years. If economists expect inflation to rise 30 percent annually, what will be the estimated return value at the end of the first year?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 28P

See similar textbooks

Related questions

Q: Consider an investment that costs $100,000 and has a cash inflow of $25,000 every year for 5 years.…

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

Q: 2. ABC Corporation plans to set aside $50,000 per year beginning 1 year from now for replacing…

A: Annual amount (P) = $50,000 Interest rate (r) = 10% Inflation rate (i) = 4% Period (t) = 6 Years

Q: A project requires a $1 million initial investment, and will yield incremental after-tax cash flows…

A: Net present value is the present value of cash inflows discounted at the required rate of return for…

Q: Your firm has taken on cost saving measures that will provide a benefit of $11,000 in the first…

A: First year benefits (C) = $11,000 Annual growth rate (g) = - 0.03 (-3%) Interest rate (r) = 0.09…

Q: How much is the sum of the present value of the expected return over those periods

A: Cash Flows (Year 1-10) (CF) = $15,000 per year Annual interest rate (r) = 5% Time Period (t) = 10…

Q: A machine costs $5240 and produces benefits of $1000 at the end of each year for 8 years. Assume an…

A: The Payback period is among the of the techniques of capital budgeting that do not take into…

Q: A power plant is planning an expansion worth $4 million now. What uniform revenue every six months…

A: Present Value of Ordinary Annuity refers to a concept which determines the value of cash flows at…

Q: If an investment project costs a firm £200 and yields a stream of profits of £100 per year for the…

A: Internal rate of return(IRR) is one of the techniques of capital budgeting that take into…

Q: An investment of $200,000 is required to expand a certain production facility in a manufacturing…

A: Equivalent operating cost for the project is calculated as follows: First calculate the inflated…

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: How much was initially invested if the value of the investment is at P200,000 after 3 and a half…

A: The present value is the value of the sum received at time 0. It is the current value of the sum…

Q: A capital budgeting project has a net investment of $250,000 and is expected to generate net cash…

A: Formulas:

Q: Valve Corporation spent P600,000 per year for the past 3 years in developing their latest product.…

A: Here, we need to equate the present value of the cost and revenues. PV of cost now = PV of base…

Q: Suppose that $4000 is invested each quarter, for the next 10 years. What is the future worth if the…

A: A concept that implies the future worth of the money is lower than its current value due to several…

Q: A company is expected to result 2900$ savings first year then increase by 200$ annually, if the rate…

A: The present value is the value of the sum received at time 0 or the current period. It is the value…

Q: Towson Industries is considering an investment of $256,950 that is expected to generate returns of…

A: A Present Value of the Annuity Table will be used to solve this question: Year 6% 10% 12% 15%…

Q: Hurkin Manufacturing Company pays accounts payable on the tenth day after purchase. The average…

A: Working capital is the cash needed to run a firm on a day-to-day basis, such as purchasing raw…

Q: A project in NU will cost $200,000 for planning. and $40,000 in cach of the next six years. It is…

A: The time worth of cash draws from the possibility that levelheaded financial backers like to get…

Q: quarterly

A: Introduction: The amount that would be in the account at the end of a particular time period is…

Q: What is the NPV of a project that costs $188,000 today and is expected to generate monthly cash…

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

Q: A company is considering an investment expected to yield $70,000 after six years. If this company…

A: Present value: It can be defined as today’s value of the sum of money that will be received by the…

Q: A 10-year investment will pay $2,500 at the end of this year, and the payments will grow at a rate…

A: Answer: Given data, Future value = $2,500 Required rate of return = 15% Paymets grow @ 5% per year

Q: You are evaluating a project that will cost $500,000 but is expected to produce cash flows of…

A: To calculate the payback period we will use the below formula Payback period = Cost of…

Q: The market volume for widgets is increasing by 15% per year from current profits of $300,000.…

A: Year Current Profit Sample Working Profit in case of design change Sample Working Extra Cash Flow =…

Q: A company is considering buying a CNCmachine. In today’s dollars, it is estimated that…

A: The inflation rate refers to the rate at which the value of the currency decreases over time and the…

Q: A project in NU will cost $200,000 for planning and $40,000 in each of the next six years. It is…

A: Cost of project = $200,000 Revenue = $40,000 Additional revenue = $20,000 and decline by $4,000

Q: A project requires a $1 million initial investment, and will yield incremental after-tax cash flows…

A: To calculate the NPV we will use the below formula NPV = [CF1/(r-g)]-P Where CF1 - Cash inflow in…

Q: (Future value) Sales of a new finance book were 15,000 copies this year and were expected to…

A: Sales this year = S0 = 15,000 copiesAnnual growth rate in sales = g = 20%

Q: A project requires a $1 million initial investment, and will yield incremental after-tax cash flows…

A: To calculate the IRR we will use the below formula IRR = (CF1/P)+g Where CF1 - After tax cash…

Q: A business industry has a new product whose sales are expected to be 1.2, 3.5, 7, 5, 3 million units…

A: The Present worth method means computing the Present value of all the cashflows generated from the…

Q: We are examining a new project. We expect to sell 5,400 units per year at $68 net cash flow apiece…

A: Net Present Value (NPV) is the calculation of the present value of net cash inflows from the…

Q: A company is considering an investment with the following estimated cash flows. But they are not…

A: The break-even investment: The break-even investment is the investment value that is equal to the…

Q: The rate of return on an investment of $1500 that doubles in value over a 4-year period, and…

A: We will use the NPER formula in excel =NPER(rate, pmt,pv,-fv,type) where NPER is the number of…

Q: A company forecasts free cash flow in one year (i.e. FCF1) to be -$10 million and free cash flow in…

A: cash flow in 1 year=$10 million cash flow in 2 years=$20 million rate=4% W.A.C.C=14% Current value=?

Q: Zwango Plus Manufacturing expects that fixed costs of keeping its Zephyr Hills Plant operating will…

A: = Initial Amount + AC

Q: An investment of $80,000 is expected to generate a net annual income of $27,000 for 5 years. If the…

A: Present worth can be calculated by using this equation Net Present worth = -investment -…

Q: An investment project costs $120,000. It is expected to have an annual net cash flow of $30,000 for…

A: Payback period is the time period that will be taken by a project to recover the initial investment…

Q: What is the rate of return on an investment of $150,000 if the company expects to earn $12,000…

A: The rate of return earned on the investment can be calculated with the help of RATE function of…

Q: A DSL company has made an equipment investment of $40 million with the expectation that it will be…

A: Given information: Equipment investment is $40,000,000 Number of years is 10 Rate of return is 12%…

Q: The demand for a product during the next ten years will be such that revenues will be $100,000 the…

Q: What would be the rate of return (IRR) on a project that had an initial cost of $100,000 today and…

A: Cash flows are the cash generated from the operation of the business organisation. In other words,…

Q: Net revenues at an older manufacturing plant will be $2 million for this year. The net revenue will…

A: The present value of the cash flow is the current worth of a cash flow at a certain rate of interest…

Q: We are examining a new project. We expect to sell 6,500 units per year at $43 net cash flow apiece…

A: Required The NPV of the project. Level of sales if the project can be dismantled and sold for…

Question

Equipment that costs $15,000 and generates a $5,000 annual return would
appear to "pay back" on the investment in 3 years. If economists expect
inflation to rise 30 percent annually, what will be the estimated return value
at the end of the first year?

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, accounting and related others by exploring similar questions and additional content below.

Similar questions

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?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
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?
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. 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?
How much must be invested now to receive $30,000 for 10 years if the first $30.000 is received one year from now and the rate is 8%?
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?
A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
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)?
Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for 10 years of $50,000. The pump can be sold at the end of the period for $100,000. What is the present value of the investment in the pump at a 9% interest rate given that savings are realized at year end?
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?
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?