Question

1. A small family business wants to expand and is planning to start an investment, which...

1. A small family business wants to expand and is planning to start an investment, which will cost an initial investment of $50,000. The father is sure that the investment will generate annual cash flows of  $11,000 for the next 10 years. In exactly 5 years from now, the machine needs some serious maintenance, which will cost $20,000. At the end of the 10 years the investment can be sold for $5,000. The MARR (Minimum Attractive Rate of Return) is 12% annual nominal, compounded semi-annually.

  1. What is the Net Present Value of the investment ?
  2. What is the Profitability Index of the investment ?
  3. Should the company accept this investment or not ?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

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
2. A German company is planning to replace the old machine for a new one. The...
2. A German company is planning to replace the old machine for a new one. The new machine will cost Euro 4 million, the old one can not be sold. The new machine will be used for 20 years, then it can be sold for 25% of the purchase price. Each year the company will save Euro 450,000 on the production costs, but the maintenance costs will be higher too: Euro 40,000 per year. In year 10, a special maintenance...
Jeffrey has been successful with his small business that he is planning to expand his shop....
Jeffrey has been successful with his small business that he is planning to expand his shop. He is going to start enlarging the shop by purchasing a larger equipment. For the following data: Original size: 25 gal New size: 50 gal Power sizing exponent: 0.2 Cost of the 25 gal equipment 10 years ago: $1500 Cost Index 10 years ago 150 Cost Index today: 200 A- if the Cost of the new 50 gal equipment 10 years ago is $1700...
An engineer uses a economic analysis to determine which of two different machines to purchase. The...
An engineer uses a economic analysis to determine which of two different machines to purchase. The machine is capable of performing the task. Assume the minimum attractive rate of return of 4% compounded semiannually. What is the annual worth of the machine? Initial cost   = $11,000 Estimated life = 10 years Salvage value = $3,500 Semiannual maintenance cost = $475 Semiannual income = 2,475
Question 1: Evaluating investment projects You are planning to invest $50,000 in new equipment. This investment...
Question 1: Evaluating investment projects You are planning to invest $50,000 in new equipment. This investment will generate net cash flows of $30,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $ Enter negative numbers with a minus sign, i.e., -100 not ($100) or (100). Should you invest? Why? YES -- the NPV is positive, which indicates...
uestion 1: Evaluating investment projects You are planning to invest $100,000 in new equipment. This investment...
uestion 1: Evaluating investment projects You are planning to invest $100,000 in new equipment. This investment will generate net cash flows of $60,000 a year for the next 2 years. The salvage value after 2 years is zero. The cost of capital is 25% a year. a) Compute the net present value NPV = $   Enter negative numbers with a minus sign, i.e., -100 not ($100) or (100). c) Compute the accounting rate of return (ARR). To compute ARR, first...
1. Julia purchased an investment grade gold coin today for $375,000. She expects it to increase...
1. Julia purchased an investment grade gold coin today for $375,000. She expects it to increase in value at a rate of 4.5% compounded annually for the next 6 years. How much will the coin be worth at the end of the sixth year? N I/Y PV PMT FV                                                                                                    2. Moon has been investing $2,500 quarterly for the past 10 years in an equity mutual fund. How much is the fund worth now assuming she has earned 8.5% compounded...
1.What is the discount rate assuming the present value of $840 at the end of 1-year...
1.What is the discount rate assuming the present value of $840 at the end of 1-year is $765? 2.What is the Future value of $3,500 deposited for 12 years at 5% compounded annually? 3. If $2,800 is discounted back 4 years at an interest rate of 8% compounded semi-annually, what would be the present value? 4. Determine the future value of $6,000 after 5 years if the appropriate interest rate is 8%, compounded monthly. 5. Consider a newlywed who is...
Suppose the opportunity cost of capital is 5% and you have just won a $750,000 lottery...
Suppose the opportunity cost of capital is 5% and you have just won a $750,000 lottery that entitles you to $75,000 at the end of each year for the next 10 years. What is the minimum lump sum cash payment you would be willing to take now in lieu of the IO-year annuity? What is the minimum lump sum you would be willing to accept at the end of the 10 years in lieu of the annuity? Using the appropriate...
Kramerica Industries, Inc. wants to invest $140,000 of extra money received from overseas sales of its...
Kramerica Industries, Inc. wants to invest $140,000 of extra money received from overseas sales of its old assets. How much money will it have at the end of 10 years if the investment fund it chooses guarantees the yearly return rate of 20% compounded annually? Vandalay Industries, Inc. anticipates big growth in business and has to start planning its future expansion. The company will need $220,000 in 8 years to purchase space for the new factory in another state. How...
1) A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year...
1) A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year 2 Year 3 A $1,400 1,600 1,800 B $1,300 1,300 1,300 If the firm can earn 7 percent in other investments, what is the present value of investments A and B? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar. PV(Investment A): $ PV(Investment B): $ If each investment costs $4,000, is the present value of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT