Question 3 Use the information provided below to answer the following questions: 3.1 Calculate the Payback Period of both machines. (Answers must be expressed in years, months and days.) 3.2 Name one disadvantage of using the payback method to evaluate capital investments. 3.3 Calculate the Accounting Rate of Return (on average investment) of Machine A (answer rounded off to 2 decimal places). 3.4 Calculate the Net Present Value of Machine A. (Round off amounts to the nearest Rand.) 3.5 Calculate the Intemal Rate of Return of Machine B using 17% and 18% (answer rounded off to 2 decimal places). INFORMATION Malibu Limited intends purchasing a new machine and has the option of purchasing one of the following two machines: Machine A Machine B Cost R350 000 R350 000 Scrap value Estimated useful life 4 years 4 years Cost of capital 12% 12% Net cash flows per year: R R End of: Year 1 100 000 130 000 Year 2 115 000 130 000 Year 3 145 000 130 000 Year 4 160 000 130 000 Average Annual profit: R42 500 R42 500

Question 3 Use the information provided below to answer the following questions: 3.1 Calculate the Payback Period of both machines. (Answers must be expressed in years, months and days.) 3.2 Name one disadvantage of using the payback method to evaluate capital investments. 3.3 Calculate the Accounting Rate of Return (on average investment) of Machine A (answer rounded off to 2 decimal places). 3.4 Calculate the Net Present Value of Machine A. (Round off amounts to the nearest Rand.) 3.5 Calculate the Intemal Rate of Return of Machine B using 17% and 18% (answer rounded off to 2 decimal places). INFORMATION Malibu Limited intends purchasing a new machine and has the option of purchasing one of the following two machines: Machine A Machine B Cost R350 000 R350 000 Scrap value Estimated useful life 4 years 4 years Cost of capital 12% 12% Net cash flows per year: R R End of: Year 1 100 000 130 000 Year 2 115 000 130 000 Year 3 145 000 130 000 Year 4 160 000 130 000 Average Annual profit: R42 500 R42 500

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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Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 Operating Income 8 9 10 $54,000 54,000 54,000 54,000 54,000 $270,000 0.943 Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% Net Cash Flow 0.909 0.826 0.751 $172,000 172,000 172,000 172,000 172,000 $860,000 12% 0.893 0.797 0.756 0.712 0.658 0.683 0.636 0.572 0.621 0.567 0.497 0.564 0.507 0.513 0.467 0.424 0.386 0.452 0.404 15% 0.361 0.322 0.870 0.432 0.376 0.327 0.284 0.247 Operating Income…
QUESTION 2 REQUIRED Use the information given below to calculate the following: 2.1 Payback Period of Project B (answer expressed in years, months and days). 2.2 Accounting Rate of Return (on average investment) of Project B (answer expressed to two decimal places). 2.3 Net Present Value of Project A (amounts rounded off to the nearest Rand.) 2.4 Internal Rate of Return of Project B, if the net cash flows are R120 000 per year for five years (answer expressed to two decimal places). INFORMATION The following information relates to two capital investment projects: Project A Project B Initial cost R400 000 R400 000 Expected useful life 5 years 5 years Scrap/Residual value R40 000 Depreciation per year R72 000 R80 000 Expected annual profits: R R End of: Year 1 100 000 45 000 Year 2 60 000 45 000 Year 3 50 000 45 000 Year 4 30 000 45 000 Year 5 20 000 45 000 The company estimates that its cost of capital is 15%.
Use the information provided below to answer the following questions: 5.1 Calculate the Payback Period of Machine B (exoressed in years, months and days). 5.2 Calculate the Accounting Rate of Return (on average investment) of both machines (expressed to two decimal places). 5.3 Calculate the Net Present Value of each machine. 5.4 Which machine should be chosen if the time value of money is taken into account? Why? 5.5 Calculate the Internal Rate of Return of Machine B using interpolation (expressed to two decimal places), if the net cash flows are R140 000 per year for five years. INFORMATION Salsa Limited intends purchasing a new machine and has a choice between two machines, of which only one can be chosen. The following information pertaining to the two machines is available: Machine A Machine B Initial cost R500 000 R500 000 Cost of capital 14% 14% Expected economic life 5 years 5 years Expected disposal value R50 000 Depreciation per year R90 000 R100 000 Expected net profit Year…
P 9-2 Investment Scenarios (LO 9-3) Arkansas Best Freightways is considering a purchase of three different potential trucks but is uncertain of the cash inflows associated with the following investment scenarios. Year Year 0 (today) Year 1 Year 2 Year 3 Year 4 Buy new truck Increased profits Increased profits Increased profits Increased profits Investment 1 (85,000) 25,000 25,000 25,000 25,000 Investment 2 (105,000) 20,000 30,000 40,000 50,000 Investment 3 (125,000) 40,000 30,000 20,000 10,000
Use the information provided to answer the questions.5.1 Use the information provided below to calculate the following. Where applicable, use the presentvalue 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). 5.1.2Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal 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. Motivateyour choice.
5.1 Calculate the Payback Period (expressed in years, months and days). 5.2 Calculate the Accounting Rate of Return on average investment (expressed to two decimal places). 5.3 Identify TWO (2) reasons why the company should not use the accounting rate of return to evaluate capital investments. 5.4 Calculate the Net Present Value. 5.5 Calculate the Internal Rate of Return (expressed to two decimal places) if the net cash flows are R320 000 per year for five years. Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION Purchase price R1 000 000 Expected useful life 5 years Scrap value 0 Minimum required rate of return 15% Expected net cash inflows: Year 1 R250 000 Year 2 R260 000 Year 3 R300 000 Year 4 R400 000 Year 5 R380 000 Expected net profit: Year 1 R50 000 Year 2 R60 000 Year 3 R100 000 Year 4 R200 000 Year 5 R180 000
REQUIRED Calculate the Payback Period of Machine A (expressed in years, months and days). Calculate the Net Present Value of both Calculate the Accounting Rate of Return on initial investment (expressed to two decimal places) of both machines. Calculate the Internal Rate of Return of Machine B (expressed to two decimal places). If the time value of money is taken into account, which machine should be chosen? Why? INFORMATION The directors of Lomax Ltd intend expanding the company and they have the choice of purchasing one of two machines at the end of 2022 viz. Machine A or Machine B. Both machines have a five-year life, with only Machine A having a residual value of R300 000. The annual volume of production of each machine is estimated at 6 000 pallets (comprising 500 bricks each), which can be sold at R520 per pallet. Depreciation is calculated on the machines using the…
Problem #2: Consider an investment where the cash flows are: - $920.33 at time 1 = 0 (negative since this is your initial investment) S407 at time = 1 in years $222 at time = 2 in years $426 at time = 3 in years (a) Use Excel's "Solver" to find the internal rate of return (IRR) of this investment. Take a screen shot showing Solver open with your entries for the function clearly visible. Paste the screen shot into an application (like Paint), and save it as a (.png) file. Upload your screenshot below. (b) What is the value of IRR found by Solver?
a. Calculate the profitability index for each investment. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. Calculate the NPV for each investment. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Answer is complete but not entirely correct. a. CDMA a. G4 a. Wi-Fi b. CDMA b. G4 b. Wi-Fi S S 3.03 3.20 2.77 16.26 X 35.17 X 42.50 x
Question 3 Assume you are given the following information regarding the expected returns for an asset, for different states of the economy. Show work for all parts requiring computation. state. probability expected return Recession 0.1 -0.04 normal 0.5 0.07 expansion 0.4 0.12 What is the expected return for the asset? What is the standard deviation of returns for the asset?
Required:2.2.1 Calculate the payback period and the accounting rate of return. 2.2.2 Malda Ltd requires a payback period of no more than 3 years and a return of at least 30%. Purely on the basis of these criteria, should this project be accepted. Explain. 2.2.3 The payback period method makes a crucial omission in the calculation, namely the time value of money. Complete the above computation using a method that accounts for the time value of money? On the basis of this calculation, should the project be accepted? Explain.
Can I please have the answers in these format : payback period = investement net annual inflow ARR = Average annual profit x 100 Average investment 1 can I have the answers in these type of format

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