The president of the Brazilian parent company Votorantim Cimentos wants to know the equivalent future worth of a $2 million capital investment each year for 10 years, starting 1 year from now. Ford capital earns at a rate of 11% per year.

The president of the Brazilian parent company Votorantim Cimentos wants to know the equivalent future worth of a $2 million capital investment each year for 10 years, starting 1 year from now. Ford capital earns at a rate of 11% per year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

See similar textbooks

Related questions

Q: Suppose that in 3 years the company must disburse $500,000 to invest in another project…

A: Formula: Future Value Annuity=Investment(P)×1+rateinterval-1rate

Q: A project requires a $1 million initial investment, and will yield incremental after-tax cash flows…

A: Net present value is the present value of cash inflows discounted at the required rate of return for…

Q: A piece of machinery is projected to provide an income of 125, 000 5000dollars per year with f in I…

A: Return on money is the amount which an investor will get for investing the amount in an investment…

Q: Park Co. is considering an investment that requires immediate payment of $27,000 and provides…

A: Present value of $1 annuity = Annuity x ((1-(1+i)^-n)/i)

Q: Park Co. is considering an investment that requires immediate payment of $27,000 and provides…

A: Investment refers to the sum amount of money or payment made in order to acquire some form of…

Q: Siemens AG invests €80 million to build a manufacturing plant to build wind turbines. The company…

A: 1.

Q: Super Company is planning to invest P 80,000 in a 3-year project. The internal rate of return (IRR)…

A: The sum over time of total cash received (inflow) from sales or loans less the total amount of money…

Q: You have the opportunity to expand your business by purchasing new equipment for $152,000. The…

A: Cost of equipment = $152,000. Useful life = 9 years Fixed cost = $79,000 Variable cost = 5%

Q: The Dominion Freight Company has invested $50,000 in a new sorting machine that is expected to…

A: NPV is an abbreviation for Net Present Value. For example, NPV helps us to know the present value of…

Q: Ransport Company has made an investment in another company that will guarantee it a cash flow of…

A: Working note:

Q: McDonald's major distribution partner, The Martin-Brower Company, needs at least $1 million to build…

A: The question requires analysis of expenses and income incurred by McDonald's to estimate how much…

Q: A company is considering an investment that will cost $759,000 and have a useful life of 6 years.…

A: NPV is the net current worth of cash flows that are expected to occur in the future.

Q: An entrepreneur decides to start a business that requires an initial investment of $100,000. It is…

A: Given: Initial investment = $100,000 Cash inflows = $25,000 Cost of capital = 17%

Q: The TV company has made an investment in video and recording equipment that costs P106,700. The…

A: Average accounting rate of return = Average net profit / Average investment 0.10 = Average net…

Q: IntFin Inc. has two investment opportunities that will pay each 10 per year for the upcoming 10…

A: Cash flows are the cash generated from the operation of the business organisation. In other words,…

Q: The JLK Corporation is considering an investment that will cost RM80,000 and have a useful life of…

A: Payback period: Payback period is the period required to collect amount invested in a capital…

Q: A new transit company needs $108 million in initial capital funding, and promises a return to the…

A: Anticipated rate of return is the return which is expected to be generated from the project. If the…

Q: Weston Corporation, a US multinational, is considering building a new assembly plant in Thailand at…

A: Standard Disclaimers“Since you have asked multiple question, we will solve the first question for…

Q: Soul Corp. management is expecting a project to generate an after-tax income of $77,270 in each of…

A: Solution: Project accounting rate of return = Average annual income / Average investment = $77,270 /…

Q: The Seattle corporation has been presented with an investment opportunity that will yield cash flow…

A: Payback period is a method of evaluating project. It shows time period under which cost of the…

Q: McDonald's major distribution partner, The Martin-Brower Company, needs at least $1 million to build…

A: Future Value of Ordinary Annuity refers to the concept which gives out the compounded or future…

Q: A small minority firm invested $100000 for a project. At an interest rate of 15% per year,…

A: In order to recover the invested amount, present value of all bimonlthy incomes can be equated to…

Q: What is the NPV for this investment.

A: Information provided: Cost of capital = 10% Year Cashflows 0 (175,000) 1 45,000 2 45,000…

Q: LMN Corporation is considering an investment that will cost Rs 100000 and have a useful life of 4…

A: Payback period is the capital budgeting technique which represent the years required to recover the…

Q: Golf Ball Inc. expects earnings to be $10,000 per year in perpetuity if it pays out all of its…

A: Golf Ball Inc. expects its earnings to be $10,000 per year in perpetuity Payout Ratio = 100% The…

Q: A mining firm makes annual deposits of $400,000 into a reclamation fund for 25 years. If the firm…

A: Interest: It can be defined as a payment or a charge that is made by the borrower to a lender.

Q: You have the opportunity to expand your business by purchasing new equipment for $152,000. The…

A: Note: We are answering 1st sub-part of the question as information related to the second part is…

Q: The JLK Corporation is considering an investment that will cost RM80,000 and have a useful life of 4…

A: Payback period is the time taken to recover the initial investment

Q: JB Co. is planning to invest in a new koala theme park. The investment will generate $4.5 million…

A: For a project to be selected, the net present value of cash flows at the required rate of return…

Q: Puan Jasmin is considering a project that requires an initial investment of RM120,000 and this is a…

A: The payback period is the time to recover the cost of investment. Simply said, it is the amount of…

Q: Beene Distributing is considering a project that will return $150,000 annually at the end of each…

Q: The optical products division of Panasonic is planning a $3.5 million building expansion for…

A: Calculation of uniform amount per quarter: Answer: Uniform amount per quarter is $372,932.60

Q: Goldie clothes are planning to expand their clothing business by opening a factory overseas. The…

A: After calculating all working in excel, the Net Present Value (NPV) is £4,35,640. NPV Calculation:…

Q: investment

A: Decision on this proposed investment is made by evaluating as follows: Present worth of cash inflows…

Q: You have an option of either buying a new machine for R2 million or employing 4 people to do the…

A: Since more than three sub-parts are asked at a time, the answer for first three sub-parts is…

Q: Starwood Ltd is considering to invest in a new project. The project is expected to generate cash…

Q: Metaz is planning to invest OMR 3500 every year for the next six years in an investment paying 12…

A: As per company policy it is only possible to solve one question in case of multiple question.

Q: An investment company is considering one of two possible business ventures. Project 1 gives a return…

A: Net Present Value- It is the difference between the present value of cash inflows and the present…

Q: Micheal Co is a software development company that headquarters in Toronto and covers Canada, the…

A: Cost of equity = Risk free rate + Beta of stock*(Market return - Risk free rate) = 4% +…

Q: For a major plant expansion project, a company wants to have $63 million 5 years from now If the…

A: Solution: Money is invested somewhere to earn interest on it. The amount initially deposited in…

Q: Assume that JL Corporation would like to know the amount of investment it will make in order to…

A: Amount of investment that JL Corporation should invest today in order to receive P500,000 after…

Q: NUBD Co. is considering a five-year investment that costs P100,000. The investment will produce…

A: In order to find out the Modified Internal Rate of Return first we need to convert the entire cash…

Q: Your firm is evaluating a project that should generate revenue of P4,600 in year one, P5,200 in year…

A: Required return = 12% Semi annual rate = 12%/2 = 6% Year Revenue 1 4600 2 5200 3 5900 4…

Q: A company receives 13.78% per year from accounts. They are considering a project that will force…

A: present value of annuity (PVA): PVA=A×1-11+RNRwhere,A=annuityR=interest rateN=number of years…

Q: You are considering investing in a glove manufacturing plant for which you need to immediately pay…

A: Net Present Value= Present value of cash inflows-Present value of cash outflows

Concept explainers

Types of Insurance Contract

Insurance is a contract wherein an individual or entity gets financial protection from the insurance company for any damages or losses incurred. The individual or entity is called the insured, whereas the insurance company is called the insurer. The insured and the insurer enter a legal contract for a fixed term called the insurance term, and the contract is called an insurance policy.

Question

Expert Solution

This question has been solved!

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

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

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

Towson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. What Is the Investments internal rate of return?
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?
Wansley Lumber is considering the purchase of a paper company, which would require an initial investment of $300 million. Wansley estimates that the paper company would provide net cash flows of $40 million at the end of each of the next 20 years. The cost of capital for the paper company is 13%. Should Wansley purchase the paper company? Wansley realizes that the cash flows in Years 1 to 20 might be $30 million per year or $50 million per year, with a 50% probability of each outcome. Because of the nature of the purchase contract, Wansley can sell the company 2 years after purchase (at Year 2 in this case) for $280 million if it no longer wants to own it. Given this additional information, does decision-tree analysis indicate that it makes sense to purchase the paper company? Again, assume that all cash flows are discounted at 13%. Wansley can wait for 1 year and find out whether the cash flows will be $30 million per year or $50 million per year before deciding to purchase the company. Because of the nature of the purchase contract, if it waits to purchase, Wansley can no longer sell the company 2 years after purchase. Given this additional information, does decision-tree analysis indicate that it makes sense to purchase the paper company? If so, when? Again, assume that all cash flows are discounted at 13%.
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
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.
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?
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?
Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce annual net cash flows of $21,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether Bouvier should invest in the grill.
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 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.
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?
Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Washington-Pacific (W-P) invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P’s expected rate of return?