Question

An investment has a cost of $4000. The investment will have a payout of X at...

  1. An investment has a cost of $4000. The investment will have a payout of X at the end of the first year. This initial payout X will grow at the rate of 14% per year for the next 3 years, then by 8% per year for the next 3 years, and then at the rate of 5% per year for the following 2 years. You believe the riskiness of this investment is 10%.
    1. Calculate the smallest X that would entice you to invest.
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

For above question Annuity X  can be calculated using  excel

A B C D E F G H
1 Year 0 1 2 3 4 5 6 7 8
2 Cash Flow -4000 1.14 1.2996 1.481544 1.60006752 1.728073 1.866319 1.959635 2.057616
Formula (=1*1.4) A2*1.14 B2*1.14 C2*1.08 D2*1.08 E2*1.08 F2*1.05 G2*1.05
NPV of Cash flows assuming 1S of cash flows $8.41 Formula=NPV(10%,A2:H2) PV of all cash flows assuming annuity as 1$
PMT $475.72 (=4000/NPV of 1$ cash flow)

Please Discuss in case of Doubt

Best of Luck. God Bless
Please Rate Well

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Determine the value of x, for a company’s two investment alternatives to be equivalent at an...
Determine the value of x, for a company’s two investment alternatives to be equivalent at an interest rate of 5\% per year: Option 1. Invest $15 at the end of the first year. Starting from the end of 9th year, the company gets sales of $x for 3 years, followed by $2.0x for 8 years, and $x for 3 years. Option 2. Invest $15 at year 0, and the company starts to get sales $15 at the end of year...
You have $19,000 you want to invest for the next 28 years. You are offered an...
You have $19,000 you want to invest for the next 28 years. You are offered an investment plan that will pay you 8 percent per year for the next 14 years and 12 percent per year for the last 14 years. How much will you have at the end of the 28 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Account value $ If the investment plan pays you 12 percent per...
End of year A B C 1 $3000 $3000 $4000 2 $4000 $3000 $4000 3 $5000...
End of year A B C 1 $3000 $3000 $4000 2 $4000 $3000 $4000 3 $5000 $3000 $(4000) 4 $(6000) $3000 $(4000) 5 $6000 $7000 $14000 You are given three investment alternatives to analyze. The cash flows from these three investments are as​ follows: a.  What is the present value of investment A at an annual discount rate of 14%?
Determine the value of x, for a company’s two investment alternatives to be equivalent at an...
Determine the value of x, for a company’s two investment alternatives to be equivalent at an interest rate of 15% per year: Option 1. Invest $3 at the end of the first year. Starting from the end of 9th year, the company gets sales of $x for 4 years, followed by $2.7x for 7 years, and $x for 4 years. Option 2. Invest $35 at year 0, and the company starts to get sales $35 at the end of year...
you are negotiating the cash flow of a potential investment that will contractuallly last the next...
you are negotiating the cash flow of a potential investment that will contractuallly last the next five years. you are asked to invest $19,004 today and you will receive fixed payments of $362 at the end of each of the next four years. you will then receive one large, final payment at the end of the fifth year. if you require a return of 14 percent per year on such an investment, what must the large, final cash flow be...
The Mini-Max Company has the following cost information on its new prospective project: Initial investment: $700...
The Mini-Max Company has the following cost information on its new prospective project: Initial investment: $700 Fixed costs are $ 200 per year Variable costs: $ 3 per unit Depreciation: $ 140 per year Price: $8 per unit Discount rate: 12% Project life: 3 years Tax rate: 34% Assume that you sell the machine for book value at the end of year 3 so there is no capital gain or loss on the initial investment. How many units per year...
Ella, Inc. is considering a new capital budgeting project (the “Investment”). The Investment will cost $102,030...
Ella, Inc. is considering a new capital budgeting project (the “Investment”). The Investment will cost $102,030 that must be invested today, and $105,000 that must be invested at the end of year one. The Investment will have the following net cash inflows at the end of each of the next three years. Year 1: $50,000; Year 2: $75,000; and Year 3: $100,000. The financial accounting net operating income for each of the next three years is as follows: Year 1:...
You are planning for retirement 35 years from now. You plan to invest $5,300 per year...
You are planning for retirement 35 years from now. You plan to invest $5,300 per year for the first 8 years, $6,800 per year for the next 9 years, and $13,600 per year for the following 18 years (assume all cash flows occur at the end of each year). If you believe you will earn an effective annual rate of return of 10.3%, what will your retirement investment be worth 35 years from now?
You invest $25,000 today and $4000 per year for 32 years. Assuming you earn an 8.5%...
You invest $25,000 today and $4000 per year for 32 years. Assuming you earn an 8.5% rate of return, how much will you have at the end of the 32nd year? You want to borrow $25,000. For the loan to you must repay $1100 every quarter (4 times per year) for the next 5 years plus $8700 at the end of the 5 years. Based on this, what rate of interest are you paying? Finally, assume you currently have $215,000...
You are considering an investment in a new factory that will operate for 3 years. The...
You are considering an investment in a new factory that will operate for 3 years. The initial investment will be 330722. The nominal revenues at the end of Year 1 will be $250000. Revenues will grow at a real rate of 1%. Inflation will be 2%. The nominal costs at the end of Year 1 will be $30000. Costs will grow at a nominal 4% rate. The investment will depreciated on a straight line basis to zero over 3 years....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT