Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considerintwo different Ivestments. Each require an initial investment of $15,000 and will produce cash flows as follows:End ofInvestmentYear$ 8,eee8,000$e28,e0024,000The present value factors of $1 each year at 15% are0.869620.7561e.6575The present value of an annuity of $1 for 3 years at 15% is 2.2832The net present value of Investment B isMuitiple ChoceS780

Net Present Value: It represents the project's or investment's absolute profitability in amount.…

Answered: The present value of an annuity of $1…

Business

Finance

The present value of an annuity of $1 for 3 years at 15% is 2.2832 The net present value of Investment B is

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

See similar textbooks

Related questions

Q: Diol Athletics is trying to determine its optimal capital structure, which now consists of only debt…

A: Formula of Levered Beta is as follows: Levered Beta= Unlevered Beta×1+1- Tax Rate×DebtEquity

Q: Assume that you can get a loan from NCB for $264,500 for three years to buy an item of your…

A: Present Value of Ordinary Annuity refers to the concept which dictates the discounted value of a sum…

Q: A stock has a CAPM return of 4.4% and an HPR return of 5.5%. Which of the following is true?…

A: Data given: CAPM = 4.4% HPR = 5.5%

Q: Consider a stock worth K12.50 that can go up or down by 15% per period. Assume a period process of…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

Q: 3. Suppose a certain bond sold a volume of 2, 375, 000. If the bonds sold for $824.99, calculate the…

A: Given, Meaning of a bond, Bond is an instrument of debt which is floated by the company so that…

Q: Required: 1. Assuming that all sales were on account, calculate the following risk ratios for 2024…

A: Receivable Turnover Ratio: It measures how efficient the firm is in the collection of receivables…

Q: how to implement penny stock Strategy for stock market portfilo when you invest 25,000$

A: Penny stocks are those stocks that trade under $5 per share. This is as per the SEC (Securities…

Q: Management is considering buying a pump that costs $20,000 and could save them $7,500 per year over…

A: NPV is the difference between the Present Value of Cash Inflows and Initial Investment. A project…

Q: Using both duration and convexity, estimate the new price of a 5-year 9% coupon bind with par calue…

A: Face Value od bond is $100 YTM is 9% Coupon rate is 9% Time period is 5 years Change in yield is…

Q: Calculate the present value of this infinite future payment of $100

A: Time value of money (TVM) refers to the method used to measure the amount of money at different…

Q: Industrial Organization 1. Suppose firms’ market shares in the US mobile services market are as…

A: HHI measures market concentration Herfindahl-Hirschman index measures the size of firms with regard…

Q: 0,000 and the firm spent $20,000 for shipping, at the end of its life the machine could be sell for…

A: Depreciation reduce the quantity of tax a corporation or organisation pays by tracking the reduction…

Q: bond with a coupon rate of 10 percent sells at a yield to maturi ercent. If the bond matures in 12…

A: Macaulay duration show changes in prices of bonds with changes in interest rate in the market.…

Q: The given amount of annual interest is earned from a total of $8,000 invested in two funds paying…

Q: Samuel Ng received a 3-year subsidized student loan of $15,000 at an annual interest rate of 4%.…

A: Given that: Loan Amount (A)= $15000 Time(t)= 3 years Number of payments per year (n)= 12 Annual…

Q: Bill's Bakery has current earnings per share of $2.50. Current book value is $4.30 per share. The…

A: Data given: Current earning per share = $2.50 Current book value per share = $4.30 per share…

Q: The activity date, company, and amount for a credit card bill are shown below. The due date of the…

A: Here, Interest rate = 1.7% per month To Find: Finance charge =?

Q: Could I Industries just paid a dividend of $1.25 per share. The dividends are expected to grow at a…

A: Dividend discount model refers to a stock valuation model which is used by the company for…

Q: Please explain everything without any plagiarism do in your words will give you many upvotes

A: In capital budgeting we use several different tools to determine the financial feasibility of a…

Q: Discuss two ways in which foreign aid could actually be harmful to a country's development.

A: International aid, international transfer of capital, goods or services by a national or…

Q: What kinds of expenses do mutual funds incur? How are expense ratios calculated?

A: Mutual funds are referred to as the investment vehicle which provides access to investors to…

Q: Yor Inc. most recently sold 200,000 units at P12.00 each; its variable operating costs are P9.00 per…

A: Note: This post contains several questions. The first three have been solved below.

Q: Cash Flow Assumptions - defenition, uses and other informations

A: Meaning of cash flow Assumptions, This term refers to the way in which the costs are cleared from a…

Q: 1. R89,39581%.

A: Clean price is the price of bond which does not include accrued interest.

Q: An investment involves annuity of Php 1172.00 compounded 17.2 times a year at an interest 1.72%. The…

A: Here, To Find: Annual difference in annuities if the interest is compounded only once a year =?

Q: a. What minimum amount of shares must Nancy purchase to have a sales charge of 5.50%? (Round up to…

A: Fund generation or fundraising refers to a process which is used by the company to raise and gather…

Q: Assuming that Bennett uses the straight-line method of amortization, interest expense for Year 2 is…

A: Bond amortization refers to a schedule which is prepared to shows the coupon payments, amount paid…

Q: 3.15 An organization has the following data: Variable manufacturing costs (DM is P2.50) Fixed…

A: Operating income Variable costing method: It is the statement where all variable expenses are…

Q: firm earns $895 million in profits and pays $626 million in dividends for the year. The firm has…

A: Company pay the dividend to preferred stock holders and common stock holders from the net income…

Q: Demonstrate how holding an equally-weighted portfolio that combines financial and non-financial…

A: Equally weighted portfolio is where is a balance of all the assets. The assets can be stocks, bonds,…

Q: Find the future value of the given annuity (Round your answer to the nearest cent.) Ordinary…

A: Solution:- When an equal amount is paid each period at end of the period, it is called ordinary…

Q: In recent months, Allied’s group has begun to focus on real option analysis. What is real option…

A: When analyzing projects, we use different capital budgeting tools to determine the financial…

Q: (Remember to find the total amount paid over the life of the loan and subtract from house cost) What…

A: Loan Amortization: It is the process of paying the loan amount by making periodic payments by the…

Q: Find the effective rate corresponding to the given nominal rate. (Use a 365-day year.) 6%/year…

A: Return on investment is the rate of amount received each period of investment compared to the…

Q: Use the following to answer the question below. Reserve Requirement Ratio 25.8% Initial Deposit $1…

A: Solution:- Total change in deposits is the change in initial amount after the effect of Reserve…

Q: The present value of a sum of money is the amount that must be invested now, at a given rate of…

A: Solution: Amount invested today is called present value and amount with interest at maturity is…

Q: Suppose you decide to take out the $1 million 30-year fixed rate mortgage at 4%. a) How much…

A: Mortgage loans are paid by the equal monthly payments these carry the payment of loan amount also…

Q: A firm earns $895 million in profits and pays $626 million in dividends for the year. The firm has…

A: There is a difference between preferred stock and common stock. Preferred stock do not carry any…

Q: Payments of 1000 are invested at the end of each year for 5 years. The payments earn interest at an…

A: Annuity involves the payment of a periodic amount up to a specified period of time, and eventually a…

Q: what is the price of this debt by general floating equation (long cut formula)?

A: Bond or debenture valuation refers to a method which is used to compute the current value or present…

Q: In a studio inc 2021 income statement lists the following income and expenses EBITDA equals $650,000…

A: Given, EBIT = 538,000 Interest = 63,000 Earnings before Tax = EBIT - Interest = 538,000 - 63,000…

Q: Commercial bank V[ Choose) Congress Finding the discount rate Comptroller of the Currency…

A: As per Bartleby guidelines,If a question with multiple sub-parts are posted, first 3 sub-parts will…

Q: Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to…

A: The Price Multiple approach can be used to calculate the expected price of a share by estimating the…

Q: What is the expected rate of return for the Philippine Stock Index Portfolio? STOCK MARKET VALUE…

A: Expected Return: The expected return is the minimum required rate of return which an investor…

Q: An investment involves annuity of 2424 php compounded 32.4 times a year at an interest3.24%. The…

A: Here, To Find: Annual difference in annuities if the interest is compounded only once a year =?

Q: 3. Suppose a certain bond sold a volume of 2, 375, 000. If the bonds sold for $824.99, calculate the…

A: Bond is a debt instrument issued by companies. Bonds pay coupon payments to bondholders and the…

Q: 8. Suppose a certain bond sold a volume of 2, 375, 000. If the bonds sold for $824.99, calculate the…

A: Last price is the price of the bond which is expressed as a percentage of Face value = (100 *…

Q: If there were a 3% load on this fund, what would your rate of return be?

A: Annual percentage rate (APR) or rate of return refers to the simple rate of interest which is…

Q: What monthly payment will she be required to make if the car is financed over a period of 24 months?…

A: Loan Monthly Payments: These are payments made by the borrower to the lender for the purpose of…

Q: ow can an entrepreneur better manage his/her working capit

A: For new business the working capital management is very important for the business and effectiveness…

Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considerin
two different Ivestments. Each require an initial investment of $15,000 and will produce cash flows as follows:
End of
Investment
Year
$ 8,eee
8,000
$e
2
8,e00
24,000
The present value factors of $1 each year at 15% are
0.8696
2
0.7561
e.6575
The present value of an annuity of $1 for 3 years at 15% is 2.2832
The net present value of Investment B is
Muitiple Choce
S780

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

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 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

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?
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?
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?
Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
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?
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.
Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricklers sales last year were 3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was 1,800,000. The firm had fixed assets totaling 535,000. Stricklers payables deferral period is 45 days. a. Calculate Stricklers cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Stricklers managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Stricklers cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?