Sonia has been offered an investment project that produces cash flows of $14,000 that she receives at the beginning of every year for the next 5 years. If the required rate of return is 10% effective annually: I a) Determine the fair price that Sonia would be willing to pay for this project. Pro-$14,000+ $14,000 0.1 -$58,378.12 b) Determine the fair price that Sonia would be willing to pay for this project if the cash flows were received at the end of each year for the next 5 years.

Sonia has been offered an investment project that produces cash flows of $14,000 that she receives at the beginning of every year for the next 5 years. If the required rate of return is 10% effective annually: I a) Determine the fair price that Sonia would be willing to pay for this project. Pro-$14,000+ $14,000 0.1 -$58,378.12 b) Determine the fair price that Sonia would be willing to pay for this project if the cash flows were received at the end of each year for the next 5 years.

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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You have been offered a project paying $300 at the beginning of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you require 9 percent rate of return to your investment? OA. $2,739 B. $2,985 C. $15,348 OD. $16,729
Q1) What is the IRR of Project A if the outlay is $6,600 and the annual after-tax.cash inflows are $2000 for four years? 8.16% 9.16 10.26 12.17 10.12 Q2) What is the NPV of Project A? $635.49 345.05 -325.59 Q3 The payback period of Project A is 2.8 years 3.0 years 3.6 years 2.9 years. I
Dhofar Art Gallery is adding to its existing buildings at a cost of 200000 OMR. The gallery expects to bring in additional cash flows of 20000 OMR, 70000 OMR, and 100000 OMR over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project? Select one: O a. None of these O b. -64767.46 OMR O c. -54376.46 OMR O d. -56424.46 OMR Fir O e. -48835.46 OMR Tir
1.2 Suppose UZALO and MUVHANGO are involved in a Heritage Day project. They need to hire two acting extras for this project, using the net cash flows: Y UZALO Project Cash flow MUVHANGO Project Cash flow 0 1 2 3 80 000 31 000 31 000 31 000 NPV = 80 000 0 C (1 + i) 0 Calculate the NPV for both projects at 8.5% interest rate. Which one will you audition for? 110 000
Dhofar water is installing new equipment at a cost of 140000 OMR. Expected cash flows from this project over the next three years will be 95000 OMR, 80000 OMR and 65000 OMR. The company's discount rate for such projects is 10 percent. What is the project's discounted payback period? Select one: O a. 1.44 years O b. 1.81 years O c. 2.82 years O d. None of these O e. 1.63 years
A project is expected to produce cash inflows of $5,000 for seven years. What is the maximum amount that can be spent on costs to initiate this project and still consider the project as acceptable, given an 11% discount rate? Select one: Oa. $15,884.15 Ob. $23,340.13 Oc. $25,900.63 O d. $23,560.98 Oe. $26,984.02
Consider an investment project in which you invest $3,500 today in order to receive $525 at the end of each of the next 10 years. If the cost of capital is 12% per year, what is the IRR and should the project be accepted? 7.23%, accept project 7.23%, reject project 5.28%, accept project 5.28%, reject project 8.14%, reject project 8.14%, accept project a. b. C. d. e. O f.
Mr Ali has an option of investing in one project from the proposed three different projects. The initial investment and cash flows are given below. (r = 12%)years Cf – project 1 Cf – project 2 Cf – project 30 (10,000) (28,000) (22,000)1 1000 3000 40002 880 7000 10003 6000 8000 10004 4000 12000 90005 2000 7500 115006 3650 6400 8900 a. Calculate payback for all three projectsb. Calculate discounted payback for all three projects c. Calculate NPV for all three projects d. Calculate profitability index for all three projects e. Calculate IRR for all three projects f. Write a detailed comment on which project Mr Ali must invest on the basis of above calculated criteria’s and why he must ignore the other projects.
Boomerang Bungee Corp. is considering the following project. Determine the equal annual annuity for the project if the cost of capital is 14%. Initial Investment: $75,000 Year Cash Inflows 1 $30,000 2 $35,000 3 $40,000 a. $2,259.62 b. $4,355.25 c. $7,768.67 d. $5,527.89
X will pay $80,000 for a project that will generate the following cash flows: YEAR 1 2 3 4 5 7 8 CASH FLOW $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $30,000 $30,000 The payback period for the investment is: O 7 years O 6.25 years O 7 years O 7.33 years
Which mutually exclusive project would you select, if both are priced at $1,000 and your required return is 15%: Project A with three annual cash flows of $1,000; or Project B, with 3 years of zero cash flow followed by 3 years of $1,500 annually?
a. return for two mutually exclusive projects to determine which project should be selected. Project A has a total life of 3 years with a discount rate of 12% and Project B has a similar total life with a discount rate of 15%. The expected cash flows of the projects are given in the table below: Suppose you work for a small farm owner and you are asked to calculate a rate of Project A -1,000 Year Project B -800 1 -2,000 -700 3,000 4,000 5,000 2 3 1,500 Would you use the IRR method or MIRR method? State why. Applying the method chosen in part (1), what is the rate of return for each project? Which project would you recommend to the owner? State why. i. ii. ii. b. A farmer is considering replacing a labor-intensive machine system with a more capital-intensive one. Adopting the new system is estimated to increase machinery operating expenses by about $21,000 per year. The new machinery will cost $30,000 plus $5,000 for shipping and installation; however, the trade-in value of the old…

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