Mountain Brook Company is considering two investment opportunities whose cash flows are provided below:Investment InvestmentYearВ(15,500)(9,600)5,1804,1605,18025,1803,2201,24035,18044,160The company's hurdle rate is 10%. What is the present value index of Investment A? (Do not round your PV factors and intermediate calculations.)Multiple Choice1.061.001.01None of these answers is correct

Calculate present value of cash inflows:

Answered: Mountain Brook Company is considering…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?
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?
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Start with the partial model in the file Ch07 P25 Build a Model.xlsx on the textbook’s Web site. Selected data for the Derby Corporation are shown here. Use the data to answer the following questions. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year-4 free cash flow). Assume growth becomes constant after Year 3. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year-0 value of operations. Calculate the estimated Year-0 price per share of common equity.
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Assume San Lucas Corporation in MAD 26-1 assigns the following probabilities to the estimated annual net cash flows: a. Compute the expected value of the annual net cash flows. b. Determine the expected net present value of the equipment, assuming a desired rate of return of 10% and the expected annual net cash flows computed in part (a). Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Based on your results in parts (a) and (b), should San Lucas Corporation invest in the equipment?
Perez Company is considering an investment of $26,945 that provides net cash flows of $8,500 annually for four years.(a) What is the internal rate of return of this investment? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.)(b) The hurdle rate is 7%. Should the company invest in this project on the basis of internal rate of return?
A company wanted to invest in a project which requires an initial investment of ₱10,000 and discounting rate of 10% and will yield yearly cash flows as follows: Year 1, ₱2,000; Year 2, ₱7,000 and Year 3, ₱6,000. So, we will find out the Profitability Index by using the formula, PV of the cash flow = FV/ (1+i) ^n. - Calculate PV of the cash flow for Year 1 of investment. -Calculate PV of the cash flow for Year 2 of investment. -Calculate PV of the cash flow for Year 3 of investment. -How much is the total PV of future cash flow of the investment? -Find the Profitability Index of the investment.
A firm has two possible investment with the following cash inflows. Each investment cost $480, and the cost of capital is ten percent. Cash Inflows Year A B 1 $300 $200 2 200 200 3 100 200 a. Based only on visual inspection, which investment is to be preferred and why? b. Based on each investment’s net present value, which investment(s) should the firm make? c. Based on each investment’s internal rate of return, which investment(s) should the firm make? Is this the same answer you obtained in part b? d. If the cost of capital were to increase to 14 percent, which investment(s) should the firm make?
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Park Company is considering an investment that requires immediate payment of $27,215 and provides expected cash inflows of $8,400 annnually for four years. Assume Park Company requires a 8% return on it's investments. A. What is the net Present Value of this investment? (PV of $1, FV of $1, PVA of $1 and FVA of $1) B. Based on NPV alone, should Park Company invest?
Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent. Year 0 1 2 3 4 5 Cash flows -1000 -75 100 100 0 2000 a) 9 percent, accept b) 9 percent, reject c) 16.61 percent, reject d) 161.61 percent, accept

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