Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to twoapartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows:Windy AcresYearly Aftertax CashInflowProbability$50,0000.255,00070,00085,00090,0000.20.20.20.2Hillcrest ApartmentsYearly Aftertax CashInflowProbability$55,0000.460,0000.270,0000.180,0000.3a. Find the expected value of the cash flow for each apartment complex. (Enter the answers in thousands.)Expected cash flowWindy AcresHillcrest Apartments$$b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round the final answersto 4 decimal places.)Windy AcresHillcrest ApartmentsCoefficient of variationc. Which apartment complex has more risk?O Hillcrest Apartments

The coefficient of variation (CV) measures the relative variability to its mean. It's calculated by…

Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Yearly Aftertax Cash Inflow $50,000 Windy Acres Probability 0.2 0.2 0.2 0.2 0.2 55,000 70,000 85,000 90,000 Hillcrest Apartments Yearly Aftertax Cash Inflow Probability $55,000 60,000 70,000 80,000 0.4 0.2 0.1 0.3 a. Find the expected value of the cash flow for each apartment complex. (Enter the answers in thousands.) Expected cash flow Windy Acres Hillcrest Apartments $ $ b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round the final answers to 4 decimal places.) Windy Acres Hillcrest Apartments Coefficient of variation c. Which apartment complex has more risk? O Hillcrest Apartments

Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Yearly Aftertax Cash Inflow $50,000 Windy Acres Probability 0.2 0.2 0.2 0.2 0.2 55,000 70,000 85,000 90,000 Hillcrest Apartments Yearly Aftertax Cash Inflow Probability $55,000 60,000 70,000 80,000 0.4 0.2 0.1 0.3 a. Find the expected value of the cash flow for each apartment complex. (Enter the answers in thousands.) Expected cash flow Windy Acres Hillcrest Apartments $ $ b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round the final answers to 4 decimal places.) Windy Acres Hillcrest Apartments Coefficient of variation c. Which apartment complex has more risk? O Hillcrest Apartments

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 7E

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Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Windy Acres Yearly Aftertax Cash Inflow 10,000 Probability 0.1 15,000 30,000 45,000 50,000 0.2 0.4 0.2 0.1 Hillcrest Apartments Yearly Aftertax Cash Inflow Probability 15,000 20,000 30,000 60,000 0.2 0.3 0.4 0.1 Mr. Backster is likely to hold the apartment complex of his choice for about 25 years and will use this period for decision-making purposes. Either apartment can be purchased for $200,000, Mr. Backster uses a risk adjusted discount rate approach when evaluating investments. His scale is related to the coefficient of variation (for other types of investments, he also considers other measures). Coefficient of Variation 0-0.35 0.35-0.40 0.40-0.58 Over 8.58 Discount Rate 5% 9 13 not considered (cost of capital) a. Compute the…
Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Windy Acres Hillcrest Apartments Yearly Aftertax Cash Inflow Probability Yearly Aftertax Cash Inflow Probability $30,000 0.2 $35,000 0.4 35,000 0.2 40,000 0.2 50,000 0.2 50,000 0.1 65,000 0.2 60,000 0.3 70,000 0.2 a. Find the expected value of the cash flow for each apartment complex. (Enter the answers in thousands.) Expected cash flow Windy Acres $ Hillcrest Apartments $ b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round the final answers to 4 decimal places.) Coefficient of variation Windy Acres Hillcrest Apartments c. Which apartment complex has more risk?…
Mr. Sam Golff desires to invest a portion of his assets in rental property. He has narrowed his choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mr. Golff has developed the following estimates of the cash flows for these properties. Palmer Heights Yearly AftertaxCash Inflow(in thousands) Probability $60 0.1 65 0.2 80 0.4 95 0.2 100 0.1 Crenshaw Village Yearly AftertaxCash Inflow(in thousands) Probability $65 0.2 70 0.3 80 0.4 90 0.1 a. Find the expected cash flow from each apartment complex. (Enter your answers in thousands (e.g, $10,000 should be enter as "10").) b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round your answers to 3 decimal places.) c. Which apartment complex has more…
Mrs. Dionne Jackson desires to invest a portion of her assets in rental property. She has narrowed her choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mrs. Jackson has developed the following estimates of the cash flows for these properties. Palmer Heights Yearly Aftertax Cash Inflow (in thousands) Probability $ 60 0.1 65 0.2 80 0.4 95 0.2 100 0.1 Crenshaw Village Yearly Aftertax Cash Inflow (in thousands) Probability $ 65 0.2 70 0.3 80 0.4 90 0.1 Find the expected cash flow from each apartment complex. Expected cash flow (in thousands) palmer heights crenshaw village
ped nt ences Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows: Hillcrest Apartments Yearly Aftertax Windy Acres Yearly Aftertax Cash Inflow Probability Cash Inflow 50,000 0.2 55,000 55,000 0.2 60,000 70,000 0.2 85,000 90,000 0.2 0.2 70,000 80,000 Probability 0.4 0.2 0.1 0.3 Mr. Backster is likely to hold the apartment complex of his choice for about 35 years and will use this period for decision-making purposes. Either apartment can be purchased for $200,000. Mr. Backster uses a risk-adjusted discount rate approach when evaluating investments. His scale is related to the coefficient of variation (for other types of investments, he also considers other measures). Coefficient of Variation 0-0.35 8% 12 Discount Rate (cost of capital) 16 Over 0.50 not considered 0.35-0.40 0.40-0.50 a.…
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3) Coefficient of variation and investment decision Mr. Sam Golff desires to invest a portion of his assets in rental property. He has narrowed his choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mr. Golff has developed the following estimates of the cash flows for these properties: Palmer Heights Crenshaw Village Yearly Aftertax Cash Inflow (in thousands) Probability Yearly Aftertax Cash Inflow (in thousands) Probability $70.................. .2 $75..................... .2 75.................. .2 80..................... .3 90.................. .2 90..................... .4 105.................. .2 100..................... .1 110.................. .2 a. Find the expected cash flow from each apartment complex. b. What is the coefficient of variation for each apartment complex? c.…
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Toby Amberville’s Manhattan Café, Inc., is considering investment in two alternative capital budgeting projects. Project A is an investment of $75,000 to replace working but obsolete refrigeration equipment. Project B is an investment of $150,000 to expand dining roomfacilities.Relevant cash flowdata forthe two projects over their expected two-year lives are: Project A year 1 year 2 probability cash flow probability cash flow 0.18 0 $ 0.08 0 $ 0.64 50,000 $ 0.084 50,000 0.18 100,000 0.08 100,00 Project B year 1 year 2 probability cash flow probability cash flow 0.50 0 $ 0.125 0 $ 0.50 200,000 0.75 100,000 0.125 200,000 A. Calculate the expected value, standard deviation, and coefficient of variation for cash flows from each project. B. Calculate the risk-adjusted NPV for each project using a 15% cost of capital for the riskier project and a 12% cost of capital for the less risky one. Which project is preferred…
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Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?