Problem 24-5B Payback period, break-even time, and net present value A1 P1 P3 Aster Company is considering an investment in technology to improve its operations. The investment costs $800,000 and yields the following net cash flows. Management requires a 10% return on its investments. Net cash flows Required 1. Determine the payback period for this investment. 2. Determine the break-even time for this investment. 3. Determine the net present value for this investment. Year 1 $300,000 Year 2 $350,000 Year 3 $400,000 Year 4 $450,000

Problem 24-5B Payback period, break-even time, and net present value A1 P1 P3 Aster Company is considering an investment in technology to improve its operations. The investment costs $800,000 and yields the following net cash flows. Management requires a 10% return on its investments. Net cash flows Required 1. Determine the payback period for this investment. 2. Determine the break-even time for this investment. 3. Determine the net present value for this investment. Year 1 $300,000 Year 2 $350,000 Year 3 $400,000 Year 4 $450,000

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 10.24Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for their production systems,Year System 1 System 20 -$14,800 -$45,662 1 15,037 32,200 2 15,037 32,200 3 15,037 32,200 Compute the IRR for both production system 1 and production system 2. (Round answers to 2 decimal places, e.g. 15.25.)a). IRR of system 1 is __% and IRR of system 2 is ___% b).Which has the higher IRR, System 1 or System 2? c). Compute the NPV for both production system 1 and production system 2. (Round answers to 2 decimal places, e.g. 15.25 or 15.25%.)NPV of system 1 is $ ____ and NPV of system 2 is ____d). Which production system has the higher NPV? System 1 or System 2?
Exercise 24-9 (Algo) Payback period; net present value; unequal cash flows LO P1, P3 Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Year Initial investment 1. 2. 3. Net Cash Flows Project 1 $(48,000) 12,000 29,700 21,000 Project 2 $(72,000) 35,000 20,000 25,000 a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred?
Question 27 of 30 View Policies Current Attempt in Progress -/0.1 E: Sandhill Bancorp has made an investment in banking software at a cost of $1,806,200. If management expects productivity gains and cost savings to generate additional cash flows of $586,900, $657,600, $491,600, and $382,760 over the next four years, what is the investment's payback period? (Round answer to 2 decimal places, e.g. 15.25.) Payback period is eTextbook and Media Save for Later Using multiple attempts will impact your score. 20% score reduction after attempt 2 years Attempts: 0 of 3 used Submit Answer
Exercise 24-18 (Algo) Net present value, unequal cash flows, and internal rate of return LO P3, P4 Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $324,000 and would yield the following annual net cash flows. (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Net cash flows Year 1 Year 2 Year 3 Totals Project C1 $ 44,000 140,000 200,000 $384,000 Project C2 $ 128,000 128,000 128,000 $ 384,000 a. The company requires a 8% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted. b. Using the answer from part a, is the internal rate of return higher or lower than 8% for (1) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question. Complete this question by entering your answers in the tabs below. Proiect C1 Required A Required B The company requires…
Exercise 25-13A Internal rate of return LO P4 Following is information on two alternative investments being considered by Tiger Co. The company requires a 5% return from its investments. Project X1 Project X2 Initial investment $ (102,000 ) $ (164,000 ) Expected net cash flows in year: 1 36,000 76,500 2 46,500 66,500 3 71,500 56,500 Compute the internal rate of return for each of the projects using excel functions and based on internal rate of return, indicate whether each project is acceptable. (Round your answers to 2 decimal places.)
Question 25 Jefferson International is trying to choose between the flowing two mutually exclusive design projects: Year Cash Flow (A) Cash Flow (B) 0 -$79,000 -$12,500 1 18,500 5,800 2 39,600 21,800 3 48,700 25,600 The required rate of return is 9 percent. Project A has a profitability index of 1.3 and project B has a profitability index of 1.24. Which project should the firm accept and why? Choose the answer with the "best" reasoning. Group of answer choices Project A because it has a higher profitability index Project B because it has a higher profitability index Project A because it has a higher NPV Project B because it has a higher NPV Project B because it has a higher profitability index and NPV
c. What is the IRR, and what would be the decision based on the IRR? (Round answer to 2 decimal places, e.g. 15.25.) The IRR of the project is %, and using the IRR rule the project should be Click if you would like to Show Work for this question: Open Show Work rejected accepted
Exercise 26-3 (Algo) Payback period and unequal cash flows LO P1 Beyer Company is considering buying an asset for $400,000. It is expected to produce the following net cash flows. Year 2 $80,000 Year Initial investment Year 1 Year 2 Year 3 Year 4 Year 5 Total Year 1 $80,000 Net cash flows Compute the payback period for this investment. Note: Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places. Net Cash Flows $ (400,000) Payback period=> Year 3 $70,000 Cumulative Cash Flows Year 4 $200,000 Year 5 $15,000
Problem 1 Ziege Systems is considering the following independent projects for the next year. REQUIRED RATE OF INVESTMENT RETURN $4 million 14.0% $5 million 11.5 $3 million 9.5 9.0 12.5 12.5 7.0 11.5 PROJECT A B C D EFGH H $2 million $6 million $5 million $6 million $3 million RISK High High Low Average High Average Low Low The company estimates that its WACC is currently 10%. The company adjusts for risk by adding 2% for WACC for high-risk projects and subtracting 2 % from the WACC (discount rate) for low-risk projects. a. Which projects should Ziege accept if it faces no capital constraints ? b. If Ziege only has the ability to invest a total of $13 million, which projects should it accept?
Question 19 of 30 View Policies Current Attempt in Progress D -/0.35 Management of Ivanhoe, Inc., is considering switching to a new production technology. The cost of the required equipment will be $4,000,000. The discount rate is 12 percent. The cash flows that the firm expects the new technology to generate are as follows. Years CF 1-2 0 3-5 $855,000 6-9 $1,490,000 a. Compute the payback and discounted payback periods for the project. (Round answer to 2 decimal places, e.g. 15.25.) The payback for the project is years, and the discounted payback period is years b. What is the NPV for the project? Should the firm go ahead with the project? (Enter negative amounts using negative sign eg. -45.25. Do not round discount factors. Round intermediate calculations to O decimal places, e.g. 1,525 and final answer to 2 decimal places, e.g. 15.25.) The NPV of the project is $ , and using the NPV rule the project should be c. What is the IRR, and what would be the decision based on the IRR?…
QS 24-22 (Algo) Internal rate of return LO P4 A company is considering investing in a new machine that requires an initial investment of $38,188. The machine will generate annual net cash flows of $16,725 for the next three years. What is the internal rate of return of this machine? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Initial investment Internal Rate of Return 1 1 Annual Net Cash Flow % = Present Value Factor = 0
QUESTION 12 Consider a project that costs $219,000 today and is expected to earn $382,000 after 6 years. There are no other cash flows. Cost of capital is 9.4%. What is thi project's internal rate of return? O a. 11.0% Ob. 6.9% O c. 9.7% O d. 13.4% O e. 15.7%

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