do not give solution in image format UGE Corporation is considering two possible investments and needs your help indetermining which will be the better financial option. Perform the necessarycalculations using Microsoft Excel so that maximum precision can be obtained.(Unless indicated otherwise, enter your answers rounded to the nearest wholedollar/input code: 0).Investment Option "North"This potential investment is a little more risky and longer term, so it has a minimumrate of return of 16.20%. This investment would require an initial outlay of cash topurchase a piece of equipment for $114,500, and at the end of the 7-year life of thisinvestment is expected to have a salvage value of $28,625. For each year of thisinvestment, net annual cash inflows are expected to be $27,750.1. How much is thepresent value of thepurchase of equipment?2. How much is thepresent value of thesalvage value?3. How much is thepresent value of theannual cash inflows?4. How much is the NetPresent Value?5. What is the value ofthe Present Value Index?(round to the nearestthousandths place/inputcode: 0.000)$ -114500$10004$9699$ 197030.172 Investment Option "South"This potential investment is less risky and shorter term, so it has a minimum rate ofreturn of 8.90%. This investment would require an initial outlay of cash of $152,000,and at the end of the 5-year life of this investment UGE Corporation is expected tohave to pay a wind-down cost of $7,600. For the first 4 years of this investment, netannual cash inflows are expected to be $40,250 and for the last year of theinvestment, the net annual cash inflow is expected to be $100,625.6. How much is thepresent value of thepurchase of equipment?7. How much is thepresent value of thewind-down cost?8. How much is thepresent value of theannual cash inflows forthe first 4 years?9. How much is thepresent value of theannual cash inflow for thefinal year of thisinvestment?10. How much is the NetPresent Value?11. What is the InternalRate of Return? (round tothe nearest hundredthsplace/input code: 0.00)Show Transcribed Text$-1520003)111,4134) 6,9205) 1.0606)-152,0007) -4,9628) 130,6859) 65,70010) 39,42311) 17.21$315$$$These are the correct answers but do not know the steps1)-114,5002) 10,007%

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 12P

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Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investment I Estimated BTIRR Investment II Optimistic 0.20 0.15 0.20 Most likely 0.60 0.10 0.15 Pessimistic 0.20 0.05 0.05 1.00 Riskless is aware that the pattern of returns for Investment II looks very attractive relative to Investment I; however, he believes that Investment II could be more risky than Investment I. He would like to compare the two investments considering both the risk and return on each. Required: a. Compute BTIRR under each of the three possible scenarios. b. Compute variance and standard deviation of the IRRs.
You are considering investing in one of two projects, which have the following returns and probabilities of occurrence: Probability 0.10 0.20 0.25 0.30 0.10 0.05 Project A -20% 0 10% 15% 20% 40% Return on Investment Project B -35% -10% 15% 25% 40% 50% (c) If risk is not a concern which project would you prefer? (d) What is the probability that your preferred project (Problem c) is less profitable than the non-preferred one (For example if you chose projA in problem c, what is the probability that Proj.B is more profitable than Proj.A or vice versa)
Assume that you have two investment alternatives: the first project produces $125 for sure, and the second project produces $150 with probability 2/5. You can borrow $110 from your financial institution for one project (investment) if you show an asset as a collateral. Suppose that you maximize your expected profit, what would be the minimum level of collateral that make you select the safe project?
Alternatives X and Y have rates of return of 10% and 18%, respectively. What is known about the rate of return on the increment between X and Y if the investment required in Y is (a) larger than that required for X, and (b) smaller than that required for X? (c) Develop two spreadsheet examples that illustrate your responses to parts (a) and (b).
You look at the rate of returns, and the betas of different capital investment options. To determine which should be pursued, you will look at Internal Rate of Return, the Capital Asset Pricing Model (Security Market Line), and the Weighted Average Cost of Capital. The expected return on the market is 12%, and the risk-free rate is 5%. Project Z: return = 17.0%, beta = 1.81 Project X: return = 10.5%, beta = .90 Project W: return = 10.0%, beta = .55 Project Y: return = 14.0%, beta = 1.10 a. Which projects should be accepted using the CAPM(SML) rule? Project W should be Project Y should be Project X should be and Project Z should be
Being Finance Manager of Salalah Textiles Industries, you need to invest an amount for OMR 50,000 in the investment market. Assume the market rate of return is 0.11, risk free rate of return is 2.75% and Beta is .73, then:Required:a) What should be required rate of return for your investment?b) Keeping the answer of question # 2a in mind, if different investment options are available with different returns in the investment market, for example:i. For investment in Project-A, 6.30% return is offered;ii. For investment in Project-B, 10.95% return is offered, andiii. For investment in Project-C, 5.65% return is offered.In above scenario, explain whether any why these investment options are overvalued or undervalued? Keeping the answer of question # 2a and 2b, what will be your investment decision (justify your answer with reasons)
Internal rate of return For the project shown in the following table, calculate the internal rate of return (IRR). Then indicate, for the project, the maximum cost of capital that the firm could have and still find the IRR acceptable. The project's IRR is %. (Round to two decimal places.) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Initial investment (CF,) $100,000 Year (t) Cash inflows (CF;) $10,000 $10,000 $45,000 $30,000 $35,000 1 4 5 Print Done
Let A and B be two risky assets. If you choose A, you will get 64TL by 30% chance, or 1TL by 70% chance. If you choose B, you will get 25TL by 40% chance or 9TL by 60% chance. First assume that you make a choice without making any detailed research or getting any consultancy. Draw a decision tree representing this situation and find the optimal investment decision for a risk neutral agent. What would be the choice of a risk averse agent between the two investment options? Explain (you can assume a representative utility function for the agent).
These questions are intended for self-study. Click the [solution] box to reveal a detailed solution. Two mutually exclusive investment projects have been presented to your company. Project A’s rate of return is 6%, and Project B’s rate of return is 8%. The cost of Project A is less than the cost of Project B. Incremental analysis yields a rate of return of 4%. If both alternatives have the same useful life and the MARR is 5%, which project should be chosen?
Adam Andler Corp is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC or cost of capital Net investment cost (depreciable basis) The salvage value of its equipment No other fixed assets will be acquired for following years The company will require an increase in net working capital at the $10,000 beginning The company will liquidate all working capital at the end of the project -10,000 Units sold (constant through years) 60,000 $30.00 $50,000 $17.00 Average price per unit, Year 1 Fixed operating…
In a few sentences, answer the following question as completely as you can. According to your textbook, “an investment should be accepted if the net present value is positive and rejected if it is negative” (p. 239). What does an NPV of zero mean?If you were a financial decision maker facing a project with NPV of zero (or close to zero) what would you do? Can you think of any other factors that might influence your decision?
A firm has two potential investment projects. The project information is summarised in the table below. Project A $670 Project B $700 Expected value of profit Standard deviation of profit Coefficient of variation of profit 175 370 0.26 0.53 Which project has a lower absolute risk level? Which project has a lower relative risk level? Which project would you advise the firm to choose? Explain your answers. ---- --- ---- ..- ---

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1. How much is the present value of the purchase of equipment? 2. How much is the present value of the salvage value? 3. How much is the present value of the $ -114500 $10004 $ 9699