Your friend has almost convinced you to invest in his palm tree farm. It would require a 4,000 (OMR) initial investment on your part He promises you revenue (before expenses) of 500 (OMR) per year the first year and increasing by 50 (OMR) per year thereafter. Your share of the estimated annual expenses is 200 OMR). You figure you should invest for 8 years. Your friend has promised to buy put your share of the business at that time (end of year 8) for 7,000 (OMR). You nave decided to set a personal MARR of 18% per year. a) Draw a cash-flow diagram for this investment. b) Find IRR of the investment (use PW). Is it feasible investment? c) d) Find the conventional B-C ratio for this investment (use AW). What is your conclusion?

Your friend has almost convinced you to invest in his palm tree farm. It would require a 4,000 (OMR) initial investment on your part He promises you revenue (before expenses) of 500 (OMR) per year the first year and increasing by 50 (OMR) per year thereafter. Your share of the estimated annual expenses is 200 OMR). You figure you should invest for 8 years. Your friend has promised to buy put your share of the business at that time (end of year 8) for 7,000 (OMR). You nave decided to set a personal MARR of 18% per year. a) Draw a cash-flow diagram for this investment. b) Find IRR of the investment (use PW). Is it feasible investment? c) d) Find the conventional B-C ratio for this investment (use AW). What is your conclusion?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

See similar textbooks

Similar questions

Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for 10 years of $50,000. The pump can be sold at the end of the period for $100,000. What is the present value of the investment in the pump at a 9% interest rate given that savings are realized at year end?
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.
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?
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?
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?