Jitu Don't upload any image Problem 11-13 Economic RentsThe following table shows the expected cash flows from a project. There are no cash flows beyond year 4. The cost of capital is 7%.a. Calculate the project's NPV.Note: Do not round your intermediate calculations. Enter your answer in thousands rounded to nearest whole number.b. Calculate the economic rent in year 1.Note: Do not round your intermediate calculations. Enter your answer in thousands rounded to 2 decimal places.се-470Cash flows ($000s)C1152C2165a. Project's NPVb. Economic rent in 1 YearC3160C4155$6965

Answered: Problem 11-13 Economic Rents The…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Problem 8-25 Profitability Index versus NPV (L03) Consider projects A and B with the following cash flows: A B Co -$44 -69 C1 +$ 28 +38 C₂ +$ 28 +$ 28 +38 +38 B a-1. What is the NPV of each project if the discount rate is 12%? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. a-2. Which project has the higher NPV? b-1. What is the profitability index of each project? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. a-2. Which project has the higher NPV? b-2. Which project has the higher profitability index? c. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects? d. Which project is most attractive to a firm that is limited in the funds it can raise? a-1. NPV of each project if the discount rate is 12% a-2. Which project has the higher NPV? b-1. Profitability index of each project b-2. Which project has the higher profitability index? c. Which…
ok ht ences A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year 0 1 2 3 Cash Flow IRR -$27,400 11,400 14,400 10,400 If the required return is 16 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Should the firm accept the project? Yes O No
es A project has the following cash flows: Year Cash Flow 0 -$ 17,200 1 7,900 2 9,200 3 7,700 a. What is the NPV at a discount rate of zero percent? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the NPV at a discount rate of 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV at a discount rate of 22 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the NPV at a discount rate of 28 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. NPV b. NPV c. NPV d. NPV
QUESTION 4 REQUIRED Use the information provided below to calculate the following: 4.1 Payback Period of Project B (answer expressed in years). 4.2 Return on investment of Project A (answer expressed to two decimal places). 4.3 Net Present Value of both projects. 4.4 Internal Rate of Return of Project B (answer expressed to two decimal places). INFORMATION The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be accepted. Project A R1 000 000 Project B R1 000 000 Initial cost Expected life Scrap value (not included in the figures below) Average annual profit 5 years 5 years R20 000 R92 000 R90 000 Expected net cash inflows: R. R. End of year. 240 000 290 000 260 000 290 000 3 280 000 290 000 4 360 000 290 000 5 300 000 290 000 The company estimates that its cost of capital is 12%.
S A firm evaluates all of its projects by applying the IRR rule. Year 0 1 2 3 Cash Flow -$ 41,000 20,000 23,000 14,000 a. What is the project's IRR? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the required return is 14 percent, should the firm accept the project? a. Internal rate of return b. Project acceptance %
Question 2 Compute the B/C ratio at i-10%, for the following project and justify if you selected it or not, based on economic view point (Banefits) $30 $30 $ 20 $ 20 $5 $5 $8 $8 $10 $10 (Recurring costs) (Investment)
Question 5 Use the information provided to answer the questions. 5.1 Use the information provided below to calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. Calculate the Payback Period of Project A (expressed in years, months and days). 5.1.1 5.1.2 5.1.3 5.1.4 Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to two decimal places). Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivate your choice.
A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 –$ 148,000 1 68,000 2 71,000 3 55,000 What is the project's IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) A. The Initial Rate on Return
Question 5 Use the information provided to answer the questions. 5.1 Use the information provided below to calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. 5.1.1 Calculate the Payback Period of Project A (expressed in years, months and days). 5.1.2 Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to two decimal places). 5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). 5.1.4 Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivate your choice. INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You are given the following projected data: Initial cost Scrap value Depreciation per year Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Project A…
Problem 5-16 Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 9 percent. a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
ос What is the profitability index of a project that costs $8,000 and provides cash flows of $2,100 in years 1 and 2 and $4,100 in year and 4? The discount rate is 10%. Note: Do not round intermediate calculations. Round your answer to 4 decimal places. Answer is complete but not entirely correct. Profitability index 1.1907x
Problem 8-23 Profitability Index (LO3) Consider the following projects: со -$2,650 Project A C1 +$2,550 C2 +$1,750 B - 2,650 + 1,990 + 1,838 a. Calculate the profitability index for A and B assuming a 21% opportunity cost of capital. (Do not round intermediate calculations. Round your answers to 4 decimal places.) Project Profitability index A B b. According to the profitability index rule, which project(s) should you accept? O Project A O Project B Both ○ Neither

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