Question

You are considering an investment opportunity that costs $175,000 and will return 12% on your investment. There are higher returning investments available in the financial markets that are comparable to this investment opportunity in terms of risk. However, a bank offers to lend you up to $175,000 at 6% with no conditions. Should you undertake this investment opportunity? a. Yes because the return on the investment opportunity is greater than its opportunity cost of capital. b. No because the return on the investment is less than its opportunity cost of capital.

Answer #1

You are offered a four-year investment opportunity costing
$100,000 today. The investment will pay $25,000 in the first year,
$27,000 in the second year, $30,000 in the third year, and $40,000
in the fourth year. Investments of comparable risk require a 10%
rate of return in the financial market. Should you accept the
investment opportunity and why?
A.
Yes, those cash payments look good to me because they add up to
$122,000.
B.
Yes, because the investment’s cash payments represent...

41.You are analyzing an investment opportunity for your firm.
The investment will cost $10,000 to undertake and will produce a
cashflow of $2000 at the end of every year for the next 6 years.
What is the internal rate of return?
Select one:a. About 4%b. About 4.5%c. About 5%d. About 5.5%e.
None of the above.

You are considering an investment with the following cash flows.
If the required rate of return for this investment is 16.5 percent,
should you accept the investment based solely on the internal rate
of return rule? Why or why not?
Year: 0, 1, 2, 3
Cash Flow: -152000, 98,200, 102,300, -4,900
A.
Yes; The IRR exceeds the required return.
B.
Yes; The IRR is less than the required return.
C.
No; The IRR is less than the required return.
D....

You are the CFO of a business and have the opportunity to
evaluate two different investment opportunities. Information
related to these investments follows:
Investment 1
Investment 2
Investment Cost
$ 800,000
$ 500,000
Salvage Value
$ 40,000
$ 50,000
Useful Life
8 years
15 years
Required Rate of Return
10%
10%
Sales
$ 450,000
$ 400,000
Variable Costs
$ 150,000
$ 175,000
Fixed Costs (excluding depreciation)
$ 100,000
$ 150,000
Tax Rate
35%
35%
Your company has a required rate...

a. You are considering an investment of $55,000 in an account
that pays 8.3 percent compound interest. How much less interest
would you earn in a 3-year period if the interest was simple?
(10%) b. Your firm wants to borrow $250.000 for 10 years from
the bank in order to pursue a big
investment opportunity. The bank will lend the money but it
requires an upfront fee of $ 10,000. The interest is 6.3%. How much
will you be paying...

Book rate of return and profitability index are the two most
commonly used investment criteria.
True
False
The IRR rules states that you invest if the project IRR is
greater than the opportunity cost of capital.
True
False

You are considering Project B that requires an initial
investment of $70. The current present value of its cash flows is
estimated to be $100 based on today’s market conditions. You can
undertake Project B now or wait for one month to decide. The
current risk-free rate is 0.25%, and the standard deviation of
project return is 10%. What should you do? Suppose instead that the
initial investment for Project B is $100, the current present value
of its cash...

Baldwin Enterprises is considering investing in one of
two capital investment opportunities and you have been asked to
evaluate the two alternatives. The first investment opportunity
costs $170,400 and will provide additional revenues of $35,000 for
the next 7 years. The second investment opportunity costs $187,900
and will result in cost savings of $28,000 per year for the next 10
years.
Required:
What is the internal rate of return for each capital
investment opportunity to the nearest whole
percentage?
Which...

Your division is considering two investment projects, each of
which requires an up-front expenditure of $22 million. You estimate
that the cost of capital is 11% and that the investments will
produce the following after-tax cash flows (in millions of
dollars):
Year
Project A
Project B
1
5
20
2
10
10
3
15
8
4
20
6
If the two projects are mutually exclusive and the cost of
capital is 15%, which project should the firm undertake?
The firm...

You have been offered a very long-term investment opportunity to
increase your money one hundredfold. You can invest $1,700 today
and expect to $170,000 receive in 40 years. Your cost of capital
for this (very risky) opportunity is 25% . What does the IRR rule
say about whether the investment should be undertaken? What about
the NPV rule? Do they agree?
The IRR of this investment is ; (round to one decimal
place. i.e. write "12.34%" as "12.3%".)
According to IRR...

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