Please help me to solve this problem Exercise 3-11 (Algo) Compare investment alternatives LO 3-2Your friend has two investment opportunities that she is considering and has asked for your advice regarding how she shouldproceed. One will have an 12.0% rate of return on an investment of $580; the other will have a 15.0% rate of return on an investmentof $700. She would like to take advantage of the higher-yielding investment but has only $580 available.Required:What is the maximum rate of interest that your friend should be willing to pay to borrow the $120 needed to take advantage of thehigher yield?Note: Do not round intermediate calculations. Round your answer to 2 decimal places.Maximum rate of interestI%

The investment carry the interest rate and that interest depends on the amount borrowed and period…

Exercise 3-11 (Algo) Compare investment alternatives LO 3-2 Your friend has two investment opportunities that she is considering and has asked for your advice regarding h proceed. One will have an 12.0% rate of return on an investment of $580; the other will have a 15.0 % rate of reta of $700. She would like to take advantage of the higher-yielding investment but has only $580 available. Required: What is the maximum rate of interest that your friend should be willing to pay to borrow the $120 needed to tak higher yield? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Maximum rate of interest

Exercise 3-11 (Algo) Compare investment alternatives LO 3-2 Your friend has two investment opportunities that she is considering and has asked for your advice regarding h proceed. One will have an 12.0% rate of return on an investment of $580; the other will have a 15.0 % rate of reta of $700. She would like to take advantage of the higher-yielding investment but has only $580 available. Required: What is the maximum rate of interest that your friend should be willing to pay to borrow the $120 needed to tak higher yield? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Maximum rate of interest

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Mf4. 1. Calculate the Payback period 2. Calculate the Net Present Value (NPV) of both projects 3. Calculate the Internal Rate of Return (IRR) of both projects 4. Critically discuss the merits of each investment appraisal method, then discuss the result of the evaluations you have made of the two projects and advise the company which project should be undertaken
Solving for Unknown Variables for Different Investments Solve for the unknown variables in each of the four separate investment scenarios. Assume interest is compounded annually in each case. Round final answer to the nearest whole number or percentage point. Use a negative sign only for an amount related to PV. Investment 1 Investment 2 Investment 3 Investment 4 RATE Answer 7% 4% 6% NPER 4 Answer 12 10 PV $(14,500) $(63,800) Answer $(237,800) FV $23,200 $101,500 $52,200 Answer
Question 2 You must choose between two investments, X and Y . The profitability index (PI), net present value (NPV) and internal rate of return (IRR) of the two investments are as follows: Criteria Investment X Investment Y NPV R44 000 −R22 000 PI 1,945 0,071 IRR 16,00% 8,04% Which investment(s) should you choose, taking all the above criteria into consideration, if the cost of capital is equal to 12% per year? [1] X [2] Y [3] Both X and Y [4] Neither X nor Y [5] Too little information to make a decision 17 DSC1630
Q.2. For an investor with a minimum rate of return of 8.0%: a) Rank the following non-mutually exclusive alternative. b) For a time zero budget of $1,400, which of the projects would you select? Use NPV, GRR and PI analysis. Year 0 1 2 3 4 Project A -$200 $75 $75 $75 $75 Project B -$450 $155 $155 $155 $155 Project C -$700 $250 $250 $250 $250 Project D -$950 $380 $330 $280 $230
tudent question Time to preview question: 00:09:18 Seeking for accounting rate of return for Option 1, 2, & 3 (info below). The senior VP in charge has asked that you make a recommendation for the purchase of new equipment.Ideally, the company wants to limit its capital investment to $500,000. However, if an asset meritsspending more, an investment exceeding this limit may be considered. You assemble a team to helpyou. Your goal is to determine which option will result in the best investment for the company. Toencourage capital investments, the government has exempted taxes on profits from new investments.This legislation is to be in effect for the foreseeable future.The average reported operating income for the company is $1,740,000.The company uses a 10% discount rate in evaluating capital investments.The team is considering the following optionsOption 1:The asset cost is $300,000.The asset is expected to have an 8-year useful life with no salvage value.Straight-line…
QUESTION 7 If you have $100K, and want to invest in assets A, B and C. Asset A has historical AVG return of 15%, asset B 20%, and asset C 10%, in what proportions of $100K would you allocate into assets A, B and C? i.e. Which scenario is most rational? A > B > C A > C > B B > A > C C >A > B
Q.1. Three mutually exclusive investment alternatives are under consideration. The initial capital outlays and the pattern of the net annual cash benefits (revenues - expenses) for each alternatives are presented in the following table. Based on NPV analysis, if the company’s minimum acceptable rate of return is 10%, which alternative should be the best economic choice? Use appropriate IRR analysis to double-check your selection. Investment, M$ A B C Initial cost -$200 -$350 -$500 Net Revenues, year 1 to 3 $80 $105 $85 Net Revenues, year 4 $60 $90 $150 Net Revenues, year 5 $40 $80 $250
Finance Initial Investment $17,766 End of Year Income 1 $5,919 2 $4,285 3 $5,143 4 $3,532 5 $1,800 (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) pop-up content ends PrintDone Justin Lieberman must earn a minimum rate of return of 9.22% as compensation for the risk of the following investment: a. Use present value techniques to estimate the IRR on this investment. b. On the basis of your finding in part a, should Justin make the proposed investment? Question content area bottom Part 1 a. The yield on this investment is enter your response here%. (Round to two decimal places.)
A3 3b 3. We have two mutually exclusive investments with the following cash flows: Year Investment A Investment B 0 –$100 –$100 1 10 50 2 30 40 3 50 30 4 70 20 b. Calculate the NPV profile for each investment, using the discount rates of 0%, 5%, 10%, 15%, 20%, and 25%. Perform this task in an Excel spreadsheet. Cautionary note: If you use the =NPV() function in Excel to calculate the NPVs, it will provide incorrect answers. The NPV() function actually calculates the present value of all cash inflows. The NPV should be calculated as =NPV(all cash inflows) – initial cash outflow.
Pm.3 Find out the profitability index (PI) of the following project assuming the required rate of return is 8%. Will you accept the project? Why? year 0 1 2 3 4 5 Cash Flow ($) -250,000 50,000 40,000 120,000 80,000 45,000 Group of answer choices Accept the project because the PI is equal to 1.06, which is larger than 0. Accept the project because the PI is equal to 0.98, which is larger than 0. Reject the project because the PI is equal to 1.06, which is larger than 1. Reject the project because the PI is equal to 0.98, which is lower than 1. Accept the project because the PI is equal to 1.06, which is larger than 1.
Question 6 XY Company is considering 5 investment projects as follows: Project Investment ($) Profitability index (PI) A 10,000 1.2 B 6,000 1.1 C 18,000 1.6 D 14,000 0.9 E 12,000 1.3 The company has $30,000 available for investment. Projects C and E are mutually exclusive. All projects can be undertaken only once and are not divisible. Required: (ii)Rank the projects PI and NPV
Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects.

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