The cash flow details of a public project is as follows Initial cost = BD 210000 Annual operating cost = BD 10000 Worth of annual benefits = BD 12,000 %3D %3D Worth of annual disbenefits = BD 1245 Salvage value = BD 150000 Interest rate per year = 8% and useful lie = 30 Years Using benefit-cost ratio method and find out the economical acceptability of the public project. Use PW and AW methods to find out the equivalent worth of costs, benefits and disbenefits, also discuss why it is profitable(Use excel)
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- Assume the demand for a companys drug Wozac during the current year is 50,000, and assume demand will grow at 5% a year. If the company builds a plant that can produce x units of Wozac per year, it will cost 16x. Each unit of Wozac is sold for 3. Each unit of Wozac produced incurs a variable production cost of 0.20. It costs 0.40 per year to operate a unit of capacity. Determine how large a Wozac plant the company should build to maximize its expected profit over the next 10 years.A project does not necessarily have a unique IRR. (Refer to the previous problem for more information on IRR.) Show that a project with the following cash flows has two IRRs: year 1, 20; year 2, 82; year 3, 60; year 4, 2. (Note: It can be shown that if the cash flow of a project changes sign only once, the project is guaranteed to have a unique IRR.)Rollo Megabux has $1 million to invest in stocks orbonds. The percentage yield on each investment during thecoming year depends on whether the economy has a goodor a bad year (see Table 17). It is equally likely that theeconomy will have a good or a bad year.a If Rollo is risk-neutral, how should he invest hismoney?b For $10,000, Rollo can hire a consulting firm toforecast the state of the economy. The consulting firm’sforecasts have the following properties:P(good forecast|economy good) .80P(good forecast|economy bad) .20Should Rollo hire the consulting firm? What are EVSIand EVPI? Economy EconomyHas Good Has BadYear YearYield on stocks 22% 10%Yield on bonds 16% 14%
- Aurillo Equipment Company (AEC) projected that its ROE for next year would be just 6 percent.However, the financial staff has determined that the firm can increase its ROE by refinancing somehigh interest bonds currently outstanding. The firm’s total debt will remain at $200,000 and the debtratio will hold constant at 80 percent, but the interest rate on the refinanced debt will be 10 percent.The rate on the old debt is 14 percent. Refinancing will not affect sales, which are projected to be$300,000. EBIT will be 11 percent of sales and the firm’s tax rate is 40 percent. If AEC refinances itshigh interest bonds, what will be its projected new ROE?The purpose of liquidity analysis is to estimate if: A. the supply of labor will be sufficient to carry out the plan B. the supply of irrigation water will be sufficient C. cash inflows will be sufficient to meet expected cash outflows D. net farm income will be positive or negativeThe Sloan Corporation is trying to choose between the following two mutually exclusive design projects. If the required return is 10 percent, what is the profitability index for each project? What is the NPV for each project? Complete the following analysis. Do not hard code values in your calculations. You must use the built-in excel function to answer this question. Annual Cash Flows I II 0 $ (51,000.00) $ (14,000.00) 1 $ 24,800.00 $ 7,800.00 2 $ 24,800.00 $ 7,800.00 3 $ 24,800.00 $ 7,800.00 Required Return 10% Profitability index (I)_________________ Profitability index(II)_________________ NPV (I) ______________ NPV (II) ______________
- Suppose you are 45 and have a $410,000 face amount, 15-year, limited-payment, participating policy (dividends will be used to build up the cash value of the policy). Your annual premium is $1,435. The cash value of the policy is expected to be $16,400 in 15 years. Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield, calculate the net cost of insurance. Use (Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, Exhibit 1-D)If workers contribute to their group’s investments and decide on these investments, workers at different stages of their careers may want different types of capital, for example a durable building versus a temporary one. a. How might the age distribution of the workers make the building they choose to build too temporary or too durable? How can a building be too durable? b. There are also young and old shareholders. Why isn’t the choice of the building’s durability also a problem if they or an elected management makes the decision on it?A. Write a document with the following information: 1. What do you expect your job to pay when you start? 2. What benefits are musts for you? 3. What benefits would you like to have even though they are not musts? 4. Include the graph you generate in step B below. B. Create a spreadsheet and a graph of life vs funds For each year of your remaining life specify the amount you plan to save/invest/withdraw that year and how much you expect that amount to increase during the year (base on actual data – typical savings interest rate, typical stock market interest rate, typical CDs, typical…). Calculate how much your funds will increase/decrease over your life and create a life (x-axis) vs funds (y-axis) plot.
- Based on Exhibit 9-9, or using a financial calculator, what would be the monthly mortgage payments for each of the following situations? Note: Round time value factor and final answers to 2 decimal places. What relationship exists between the length of the loan and the monthly payment? How does the mortgage rate affect the monthly payment? Monthly Mortgage Payment a. $123,000, 15-year loan at 6.00 percent. b. $165,000, 30-year loan at 7.50 percent. c. $68,000, 20-year loan at 7.50 percent. d-1. Longer mortgage terms mean a monthly payment. d-2. For increase in mortgage rate monthly payment is required.Kabelo and Hendrik are joint owners of Fitness Gym. They are currently investigating the option of investing in cryotherapy, a cold therapy that may reduce inflammation in tendons or joints. Their investment would provide Fitness Gym members with equipment which may be used to reduce post-exercise recovery times, at an additional cost. The addition of cryotherapy to the gym represents a strategic service for Fitness Gym. Which one of the following statements reflect the importance of capital-investment projects such as the example above. a. The relative magnitude of the amounts involved. b. The short-term nature of capital-investment decisions. c. The operational nature of capital-investment projects. d. The direct effect of the time value of money on capital-investment projects.Mary hopes to sell 10,000 pieces of chrysanthemum last November but she was able to sell 15,000 chrysanthemum. Her chrysanthemum is sold at 20 pesos each. Her total expenses was 150,000, hence, cost per unit is 15.00. What was her sales volume variance? *25,00075,00015,000100,000 Mary hopes to sell 10,000 pieces of chrysanthemum last November but she was able to sell 15,000 chrysanthemum. Her chrysanthemum is sold at 20 pesos each. Her total expenses was 150,000, hence, cost per unit is 15.00. What was her sales volume variance? *25,00075,00015,000100,000