1.) Accounting measures of performance Consider an asset with the following cash flows: Cash flows (S millions) Year 0 -12 1 2 3 +5.20 +4.80 +4.40 Table Summary: The heading Period spans columns 2 through 5. The firm uses straight-line depreciation. Thus, for this project, it writes off $4 million per year in years 1, 2, and 3. The discount rate is 10%. a. Show that the project's book profitability is its true profitability.
Q: Bond valuation) A bond that matures in 15years has a $1,000 par value. The annual coupon interest…
A: A bond is a debt instrument issued by a company. The value of a bond is the present value of all…
Q: You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained…
A: Property Costs $ 2,00,000.00 Acquisition related expenses $ 10,500.00 Repair…
Q: Amar Corporation pays 11.6% interest on its outstanding bonds. If its tax rate is 40%, what is its…
A: Solution:- When a company issue bonds to raise funds, it pays interest on it. This interest is…
Q: A crucial factor in the financial decisions of a company, including the evaluation of capital…
A: CAPM and Beta: The CAPM uses the risk-free rate, the market risk premium and the Beta to arrive at…
Q: Your company has earnings per share of $3. It has 1 million shares outstanding, each of which has a…
A: Given: Particulars Your company Target Co. Earnings per shares $3 $3 Shares outstanding 1 1…
Q: The graph below charts the past five years of returns for two different assets. Percentage Return…
A: The correlation between returns is used to measure the effect of the change of the return of one…
Q: A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a…
A: Here, To Find: Part 1. Weightage of the portfolio invested in stocks =? Part 2. Weightage of the…
Q: PLease how to obtain YTM without excel and mathematical calculator. i really need to know how to…
A: Formula for YTM: YTM =C+(FV - PV)n(FV+PV)2 Where C= Coupon payment FV= Face value of security PV=…
Q: Tess purchased a house for $475,000, she made a down payment of 25.00% of the value of the house and…
A: Here, To Find: Part 1. Monthly payment =? Part 2. Principal Balance at the end of 6 years =? Part…
Q: Stardom Manufacturing Company (SMC) is in the construction industry for many years. Recently, the…
A: As per the given information: The interest rate on bonds is 10%. The dividend on the preference…
Q: Holding other factors constant, an increase in the tax rate on revenue generated by capital will:…
A: Increase in tax rate acts as the addition of tax liability of the business. This tax rate is…
Q: Donna currently owns a large position in Facebook. She originally purchased the stock at $39.50 per…
A: A limit order is a tool in which an investor can specify the price at which the sell order would be…
Q: You are considering the acquisition of a small office building. The purchase price is $575,000.…
A: The difference between both the PV of cash inflows & outflows over a time is known as net…
Q: Beta is useful in practice because it assists in: Select one: a. designing portfolios suited to…
A: A stock's volatility can be compared to the systematic risk of the entire market using a beta…
Q: Jennifer has a 60-month fixed installment loan, with a monthly payment of $223.04. The amount she…
A: Unearned Interest: Unearned interest is interest that a lender has collected but has not yet earned…
Q: The Bensington Glass Company entered into a loan agreement with the firm's bank to finance the…
A: Rate of interest = Previous week interest rate + .27% basis subject to max 2.17% min 1.73%
Q: What is the current yield on a zero coupon bond with a remaining life of 16 years, a yield to…
A: Maturity period (m) = 16 years Yield to maturity (YTM) = 0.106 or 10.6% Face value or maturity value…
Q: The desired profit margin per labor hour is $10. The material loading charge is 40% of invoice cost.…
A: The company provided goods and services to the customers and makes a profit. The company bills its…
Q: Your company has been approached to bid on a contract to sell 5,200 voice recognition (VR) computer…
A: Here, Tax Rate is 25% Required Return is 13% Variable Cost is $165 Required NPV is $100,000
Q: According to our authors, when is the purchase of stock in one company by another classified as a…
A: Trading security- Classification of securities- There are three different classification: a) held…
Q: Company B uses $800,000 of its accounts receivables as collateral when the company borrowed…
A: The accounts receivable refers to the amounts due from customers for the goods and services provided…
Q: According to our authors, what are land improvements?
A: Land improvement- They are meant to enhance the useful life of the land.
Q: Calculate the value of a bond that matures in 18years and has a $1,000 par value. The annual coupon…
A: A Bond refers to a concept that is defined as an instrument that represents the loan being made by…
Q: A landscaping company buys a new bulldozer for $61,000.00. The company makes a down payment of…
A: The loans are paid by the monthly payments that are equal monthly payments these carry the payment…
Q: It is likely that airplane tickets will increase 6% in each of the next 3 years. The cost of a plane…
A: Annual increase in tickets = 0.06 Interest rate = 0.01 or 1% Year Increase in ticket price Ticket…
Q: Carlton Co plans to buy a new machine. The cost of the machine, payable immediately, is $800,000 and…
A: Net Present value ( NPV) is a capital budgeting techniques which help in decision making on the…
Q: lanning for a very early retirement ou would like to retire at age 40 and have enough money saved to…
A: The retirement years can be financed by money saved today. As the value of money depletes over time,…
Q: You have an opportunity to invest $100,000 now in return for $79,600 in one year and $30,300 in two…
A: Given: Year Particulars Amount 0 Initial investment -$100,000 1 Cash inflows $79,600 2 Cash…
Q: How much interest (to the nearest dollar) would be saved on the following loan if the home were…
A: Here, Original financing years = 30 years To Find: Interest savings =?
Q: The following two-step binomial cree depicts the quarterly price bath of an underlying share for an…
A: Call options gives opportunity to buy stock on the expiration by payment of small premium but no…
Q: uation of companies can be done by forecasting a series of cash flows and then estimating a horizon…
A: Value can be found as the discounted value of cash flow and discounted value of terminal value of…
Q: Find the nominal rate compounded quarterly which is equivalent to 12% compounded semimonthly. O…
A: First we need to use effective annual rate formula to calculate nominal rate Effective annual rate…
Q: Gazelle Motors paid a dividend of MUR 2(i.e., Do = MUR2.00). The dividend is expected to grow by 90%…
A: As per Gordons growth model, P = D1 / (Ke-g) P = stock price D1 = value of next…
Q: How much would $2,875 due in 50 years be worth today if the discount rate were 7.5%? Select the…
A: Present value factor can be calculated as follows = 1/(1+i) + 1/(1+i)^2 + 1/(1+i)^3 + 1/(1+i)^n…
Q: An IPO is offered at $9.50 per share for 7 million shares. The IPO underwriters had a spread of…
A: Offer price = $9.50 Underwriters spread = 0.0725 Underwriters pay per share = ? Underwriters…
Q: Minion, Inc., has no debt outstanding and a total market value of $284,900. Earnings before interest…
A: There are uncertainties in the market and different conditions are possible and under these…
Q: Purcell Farms Inc. has the following data, and it follows the residual dividend model. Currently, it…
A: Residual dividend policy states that internal accruals (net income) will be first used to finance…
Q: Answer the following: a. Explain why the interest parity condition must hold if the foreign exchange…
A: Foreign exchange market is referred as the market, where the different currencies used to get…
Q: An investor is considering purchasing Apple’s stock for $150 per share. The investor is optimistic…
A: Strike price = $150 Option premium = $3.95 Breakeven value = ? Breakeven value on the call option…
Q: Much concern has been noted on declining housing prices recently brought about by the increase in…
A: Interest rate: The amount of investment in the economy is influenced by the interest rate. Greater…
Q: A $6,000 bond had a coupon rate of 5.75% with interest paid semi-annually. Bianc purchased this bond…
A: Price of bond is the present value of coupon payment and present value of par value of bond taken on…
Q: Discuss the following topic(s) in the forum and submit proof of your participation in the online…
A: The following qualitative criteria should be taken into account when assessing the company's…
Q: Compute the yield to maturity for a zero coupon bond with a maturity of 9 years and a face value of…
A: Price of the bond (P0) = $684.29 Maturity period (m) = 9 years Face value or maturity value (Z) =…
Q: You are offered $100,000 today or $300,000 in 13 years. Assuming that you can earn 11 percent on…
A: Rate of return (r) = 0.11 or 11% Period (p) = 13 years Future value (FV) = $300,000 Present value…
Q: The direct capitalization and discounted cash flow models are used primarily in income- producing…
A: You have asked two unrelated questions. I have answered the first one. Please post the second…
Q: If you would like to have $20,000 in 5 years, how much should you invest today if your investment…
A: Present value is the value today of future cash flows discounted at the required rate of return for…
Q: Dividend policy determines the ratio between the earnings distributed to shareholders and the…
A: Dividend policy is referred as the dividend distribution, which has the guidelines that actually…
Q: Mickey and Minnie just bought a zero coupon bond for $597.97, but they cannot recall when it…
A: A zero coupon bond is a bond that pays no coupons. Instead this bond is issued at a deep discount…
Q: You have an opportunity to invest $50,100 now in return for $59,800 in one year. If your cost of…
A: Amount Invested now is $50,100 Amount returned in one year is $59,800 Cost of capital is 8.2% To…
Q: (Related to Checkpoint 9.3) (Bond valuation) Pybus, Inc. is considering issuing bonds that will…
A: Price / Present Value can be calculated using PV function in excel PV (rate, nper, pmt, [Fv],…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
- 1.) Accounting measures of performance Consider an asset with the following cash flows: Cash flows ($ millions) Year 0 -12 1 2 3 +5.20 +4.80 +4.40 Table Summary: The heading Period spans columns 2 through 5. The firm uses straight-line depreciation. Thus, for this project, it writes off $4 million per year in years 1, 2, and 3. The discount rate is 10%. a. You've just illustrated another interesting theorem. If the book rate of return is the same in each year of a project's life, the book rate of return equals the IRR. Solve.Refer to the following information. Which of the two projects, A or B, is better in terms of internal rate of return? Kenner Company is considering two projects. Project A $85,000 $20,676 Initial investment Annual cash flows Life of the project Depreciation per year 2 3 4 5 6 7 8 9 10 6 years $14,167 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 Present value of an Annuity of $1 in Arrears Periods 8% 12% 1 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 Project B $24,000 $6,011 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 5 years $4,800 14% 0.877 1.647 2.322 2.914 4.433 3.889 4.288 4.639 4.946 5.216In your first job with TBL Inc. your task is to consider a new project whose data are shown below. What is the project's Year 1 cash flow? The annual operating cash flows of the project can be calculated as follows: OCF = {[Sales - Operating Costs]*(1-Tax Rate)} + (Depreciation * Tax Rate) Sales revenues $225,250 Depreciation $78,847 Other operating costs $92,000 Tax rate 18%
- Molin Inc. is considering to a project that will have the following series of cash flow from assets (in $ million): Year Cash flow 0 -1,580.92 1 453 2 749 3 935 The required return for the project is 6%. Year Cash flow 0 -1,580.92 1 453 2 749 3 935 1. The required return for the project is 6%. 2. What is the project's profitability index? 3. What is the internal rate of return (IRR) for this project?A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year 0 Cash Flow -$ 27,800 1 11,800 -23 3 14,800 10,800 If the required return is 18 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR %Management is evaluating two mutually exclusive projects, Thing 1 and thing 2, with the following cash flows: Year. Thing 1. Thing 2 1. -$10, 000. -$10,000 2. 3,293 0 3. 3,293. 0 4. 3,293. 0 5. 3,293. 0 a. If the required rate on return of both projects is 5%, which project, if either should management choose? Why? b. If the required rate on return of both projects is 8%, which project, if either, should management choose? Why? c. If the required rate of return on both projects is 11%, which project, if either should management choose? Why? d. If the required rate of return on both projects is 14% which project, if either should management choose? Why? e. On a graph, draw the investment profiles of Thing 1 and Thing 2. Indicate the following items: -…
- A potential project involves an initial investment in machinery of RO.1,000,000 and has the following cash inflows:Year 1 – RO.250,000Year 2 – RO.350,000Year 3 – RO.200,000Year 4 – RO.400,000At the end of year 4, the machinery will be sold for RO.600,000.Calculate the accounting rate of return based on average investment.NOTE (DEDUCT THE DEPRECIATION TO ARRIVE AT THE CORRECT AVERAGE PROFIT) a. None of the options b. 35% c. 20% d. 25% Clear my choiceConsider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$29,000 −$29000 1 14,400 4,300 2 12,300 9,800 3 9,200 15,200 4 5,100 16,800 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?A project requires an initial investment of $500,000. The following cash flows have beenestimated for the life of the project:Year Cash flow ($)1 120,0002 150,0003 180,0004 160,000 a. The company uses NPV to appraise projects. Using a discount rate of 7%, calculate the NPVof the project and recommend whether the project should be undertaken.
- Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 15,456 5,225 8,223 13,013 8,705 0 1 234 -$ 276,363 26,400 51,000 57,000 402,000 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period b. What is the payback period for Project B? Payback period c. What is the discounted payback period for Project A? Discounted payback periodThe Post Company is considering investing in two alternative projects: Investment Useful life (years) Estimated annual net cash inflows for useful life Residual value Depreciation method Required rate of return What is the accounting rate of return for Project 1? OA. 52.5% B. 20% OC. 30% OD. 7.5% Project 1 $200,000 4 $60,000 $20,000 Straight-line 15% Project 2 $260,000 8 $45,000 $16,000 Straight-line 10%The following table contains the estimated cash flows of a project. Assume the appropriate discount rate (hurdle rate) is 14%. Answer the following questions: Year Operating Cash Flow 0 -$20,000 1 $7,000 2 $8,000 3 $9,000 4 $4,000 c. What is the IRR of project 1?