In planning the establishment of MOCAF flour mill facilities there are several alternativesas follows: (x Rp million,-)Alternative IAlternative IlAlternative IIIInitial investment4.0006 200Annual net receipts8001260Final score0400Economic age10 years.10 yearsIf the MARR is 12% per year, look for the best alternative with the method:a.Net Present Valueb.IRR7 6001 50060010 years

Net present value (NPV) of an alternative/project refers to the variance between the initial…

Answered: If the MARR is 12% per year, look for…

Business

Finance

If the MARR is 12% per year, look for the best alternative with the method: a. Net Present Value b. IRR

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

See similar textbooks

Related questions

Q: The real risk-free rate is 2.50%. Inflation is expected to be 1.50% this year and 4.75% during the…

A: Solution:- The yield on treasury securities will be the risk free real rate of interest after the…

Q: A basic knowledge of finance help you with your personal investments by helping you understand

A: Managing one’s own money, saving and investing are very important for any person. These come under…

Q: What is the future value in 4 years of €1,000 invested in an account with a stated annual interest…

A: Amount Invested is 1,000 Time period is 4 years Interest rate is 10% To Find: Future Value…

Q: Rajesh would like to buy his first car and the one he has his eye on is $25,000, plus an extra 13%…

A: Solution:- When a loan is taken, it can either be repaid as a lump sum payment or in instalments.…

Q: Order the expected values from smallest to largest.

A: Expected Value: It is estimated by adding all the outcomes which are weighted by their…

Q: 1. $1500 is invested semi-annually for 3 years into a fund that pays 6.8% per year, compounded semi-…

A: Solution:- When an equal amount is deposited each period, it is called annuity.

Q: When compleling an insurance applicalion, a producer should A. complete as much of the application…

A: The job of the producer is to make sure that the applicant knows all the features of the insurance…

Q: ncrete pavement on a street would cost P 2M and would lasts for 3 years. Minor maintenance cost is P…

A: Capitalized cost is the present value of all cost that are going to occur during the life of road…

Q: Long-term and short-term finance tends to be differentiated by: the amount of finance raised.…

A: Companies can raise finance for long term or for short term. As the name indicates it is the word…

Q: Suppose that the liabilities of "Bank X" are all demand deposits and 3-month time deposits.…

A: Assets and Liabilties: The liabilities and equity of a company represent the sources of funds with…

Q: What are the different factors affecting the requirements of working capital? Enumerate.

A: Working Capital- It is the fund that is required by a company for managing its day -to-day working…

Q: The period of time al the beginning of a disability during which no benefils are payable is known as…

A: In long-term care and disability insurance is the insurance used to protect an individual's…

Q: You just took over another financial adviser's account. The client invested $15,500 at 6.92%…

A: The Compound Interest Formula t = ln(A/P) / n[ln(1 + r/n)] In the formula A = Accrued amount…

Q: You are considering a project with an initial cost of $59,700 and annual cash inflows of $10,905 in…

A: Initial cost = $59,700 Annual cash inflow = $10,905

Q: Please explain the rationale why "There is no constant growth in dividends" in your example?…

A: Dividend-It is a distribution of company's profit to a class of its shareholders. The amount of…

Q: 1 Roy's Welding's bond has an annual rate of return of 5.97 percent and a face value of $1,000. The…

A: Rate of return (ROR) is a value at which an investor earns additional amount on invested amount…

Q: Winter's prefers to finance its capital spending with 35 percent debt, 25 percent internal equity,…

A: Internal equity refers to the owner’s equity. It also includes the profits and retained earnings of…

Q: Find the rate of markdown and the markdown. Regular Selling Rate of Markdown Price Sale Price…

A: Answer - Markdown - A markdown is an amount by which you decrease the selling price in order words…

Q: Harvey quit his job where he earned $45,000 a year. He figures his entrepreneurial talent or…

A: Given that Firm sold 11000 units of software at $75 each unit since: Total Revenue= Quantity×Per…

Q: practice, which one of the following factors plays the most important role in the distribution of…

A: When company goes for liquidation than company distribute the funds available for distribution among…

Q: 7 How much would an investor need to receive in nominal return if he desires a real return of 4% and…

A: Nominal rate of return is the rate that is calculated after taking into account the effect of…

Q: A company's current stock price is $50 per share, while investors' required return is 12.00%. If the…

A: Here we will use the dividend discount model. As per the dividend discount model, the value of a…

Q: Explain on the effects of rising inflation rates on the economy. How can the rising inflation rate…

A: By boosting the prices of the products inflation generally reduces your purchasing power. Inflation…

Q: 8 years from now Jennifer will need $750,000 to renovate a rental property at interest rate of 9%…

A: The time value of money concept is applied to determine the equated instalment amount of deposit to…

Q: You own a one-year European call option to buy one acre of Los Angeles real estate. The exercise…

A: A call option is an option that gives the buyer the right but not the obligation to purchase the…

Q: You have an opportunity to invest $106,000 now in return for $79,300 in one year and $29,100 in…

A: Data given: Initial Investment ($) = 106,000 Cash flow(Year 1) = $ 79300 Cash flow (Year 2) = $…

Q: An application for an individual Disability Income policy may require all of he following…

A: Disability income policy is an insurance policy which protects the insured against loss of monthly…

Q: Which statement is not correct?

A: The value of a convertible boand cannot be less then it's straight value

Q: If the value of the annual payment is $34,059.92, calculate the present value of a life annuity…

A: Present value of an annuity is the cash value of future annuity payments of all the persons, It is…

Q: Example of someone use a derivative

A: A derivative is a contract between two or more parties whose value is based on an agreed-upon…

Q: 0 Shares of ABT stock offer an expected total return of 14.6 percent. What is the dividend yield if…

A: Answer - Total Return Estimated - Formula for Total Return Estimated is given below : Yield +…

Q: You are comparing two annuities with equal present values. The applicable discount rate is 6.65…

A: The first annuity is an annuity due as its payments starts on the first day of each year. The second…

Q: You are an analyst for a large public pension fund and you have been assigned the task of evaluating…

A: Alpha of fund-The extra returns over the market benchmark for a given amount of risk taken by the…

Q: On May 14, a prospect completes an applicalion for insurance. The producer collects the initial…

A: The effective date of insurance policy is the date when insurance company legally liable under the…

Q: 7 Baker Breads has $428,000 of debt outstanding that is selling at par and has a coupon rate of 6.25…

A: Interest payable on bonds is a tax deductible expenses, it means it will generate tax savings. Tax…

Q: Suppose a financial manager buys call options on 50,000 barrels of oil with an exercise price of $57…

A: Options Payoff: Options Payoff represents the cumulative dollar amount that an option trader gets…

Q: A company is evaluating a loss control plan. The costs and benefits are as follows: • The initial…

A: Here, Discount rate = 5% To Find: Net present value (NPV) =? Decision =?

Q: Your firm is considering the purchase of equipment from two suppliers. Supplier A requires payment…

A: To compare the alternatives, present value of each alternative shall be calculated and compared to…

Q: Consider the following three bonds: Bond P Bond Q Bond R $1,000 $1,000 $1,000 Par Value Coupon Rate…

A: Given, Three bonds Bond P, Bond Q and Bond R

Q: A cash flow has the following income values: $100 at end of year 2, $200 at end of year 3, $300 at…

A: Given, The interest rate is 11% per year.

Q: What is the official language of the lASB? a) © English b) © German c) © Spanish d) French

A: Solution:- International Accounting Standards Board (IASB) is an independent body at international…

Q: What APR, compounded monthly, is needed to grow a present value of $250 to $500 over 6 years?

A: As per the information provided: Present value (PV) - $250 Future value (FV) - $500 Period - 6 years…

Q: Sonny who invested ₱45,800 had ₱82,420 returned to him 4 years and 4 months later. At what interest…

A: Present Value: The present value is the value of cash flow stream or the fixed lump sum amount at…

Q: Thomas planned to buy a house but could afford to pay only $11,000 at the end of every 6 months for…

A: A mortgage is a loan on a property where the collateral for the loan is the property itself.

Q: will save $370,940 annually in operating costs before taxes in those five years. Assume a tax rate…

A: NPV = Present value of cashinflows - Present value of cashoutflows.

Q: Jonken co is a private company based in Kitwe. The company is considering investing into a project…

A: Net Present Value: It is utilized to analyze the profitability of a projects and is calculated as…

Q: kura would like to buy a house and their dream home costs $500,000. Their goal is then to save…

A: Future value of money includes the amount of money invested and amount of interest collected over…

Q: Jessica purchased an electric guitar from Music World. The purchase price was $2,700. She took…

A: Given that the current purchase price is $2700. We have to find the number of annuity of $150…

Q: A business owner may choose to use a VUL for which of the following reasons? O To provide key person…

A: VUL is a sort of whole life insurance with a built-in savings component that allows for cash value…

Q: 3 One way in which financing decisions are easier than investment decisions all of these it is more…

A: Financing decision The decision involves in raising funds is called financing decision. There are…

Question

In planning the establishment of MOCAF flour mill facilities there are several alternatives
as follows: (x Rp million,-)
Alternative I
Alternative Il
Alternative III
Initial investment
4.000
6 200
Annual net receipts
800
1260
Final score
0
400
Economic age
10 years.
10 years
If the MARR is 12% per year, look for the best alternative with the method:
a.
Net Present Value
b.
IRR
7 600
1 500
600
10 years

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

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

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.
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?
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
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.
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?
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?
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?
Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The wind turbines require an investment of 887,600, while the biofuel equipment requires an investment of 911,100. No residual value is expected from either project. Instructions 1. Compute the following for each project: A. The net present value. Use a rate of 6% and the present value of an annuity table appearing in Exhibit 5 of this chapter. B. A present value index. (Round to two decimal places.) 2. Determine the internal rate of return for each project by (A) computing a present value factor for an annuity of 1 and (B) using the present value of an annuity of 1 table appearing in Exhibit 5 of this chapter. 3. What advantage does the internal rate of return method have over the net present value method in comparing projects?