Question

Suppose you have developed the following information for a potential investment: current market value is $1,100,000; anticipated loan to value ratio is .80 with 2 points; and predicated cash flows of ATCF1 = $38,560, ATCF2 = $41,780, ATCF3 = $37,210, ATCF4 = $39,127, and ATER4 = $191,730. Further, assume the investor's minimum required after-tax rate of return on equity is 11.5%. a. What is the internal rate of return on this potential investment? b. What is the profitability index on this investment?

Answer #1

Suppose you have developed the following information for a
potential investment:
current market value is $1,200,000; anticipated loan to value
ratio is .80 with 2
points; and predicated cash flows of ATCF1 = $38,560, ATCF2 =
$41,780, ATCF3 =
$37,210, ATCF4 = $39,127, and ATER4 = $191,730. Further, assume
the investor's
minimum required after-tax rate of return on equity is 12%.
a. What is the internal rate of return on this potential
investment?
b. What is the profitability index on...

11.
The discount rate that makes the net present value of an
investment exactly equal to zero is the:
A)
Payback period.
B)
Internal rate of return.
C)
Average accounting return.
D)
Profitability index.
E)
Discounted payback period.
12.
The internal rate of return (IRR) rule can be best stated
as:
A)
An investment is acceptable if its IRR is exactly equal to its
net present value (NPV).
B)
An investment is acceptable if its IRR is exactly equal to...

You have just completed an analysis of an investment. You used
Net Present Value, Profitability Index and Internal Rate of Return.
Your boss has just asked you for the payback. What will you tell
him/her?

You are considering building a shopping mall. The initial
investment is ?$1.43. million. The cash flows are?$410,000
for year? 1,200,000 for year?2, $200,000 for year? 3, and
?$170,000 for year 4. What are the net present value? (NPV) and
profitability index? (PI) of the project if the cost of capital is
12?%? Compute the internal rate of return? (IRR) for the
project.

Catherina makes an investment in the Australian equity market
index using her own fund of $200,000 and a margin loan that
provides $100,000. The following table is prepared by Catherina. If
there is a 40% rise in her portfolio value, compute the net
portfolio value and the loan to value (LVR) ratio for her geared
portfolio. What is the rate of return of her investment with
gearing?
Geared Portfolio
Ungeared Portfolio
Initial Investment
200,000
200,000
Borrowed Fund
100,000
0
Portfolio...

Question 4 (Total marks =15)
You are evaluating an investment project, Project XX, with the
following cash flows:
Period Cash Flow
0 -$200,000
1 $65,000
2 $65,000
3 $65,000
4 $65,000
5 -$65,000
Calculate the following:
(a). Payback period ( 2 marks)
(b). Calculate the discounted cash flows for each year, assuming a
10% discount rate.
(c) Discounted payback period, assuming a 10% cost of capital.
(d) .Net present value, assuming a 10% cost of capital.
(e). Profitability index, assuming...

Weights:
Cost of Capital
Market Value
Weights
After tax cost of bank loan
1.29%
$500
3.33%
0.04%
After tax cost of long-term debt
2.31%
$2,500
16.67%
0.39%
Cost of Common Equity
8.64%
$12,000
80.00%
6.91%
$15,000
WACC =
7.34%
Free Cash Flow
(16,000,000)
400,000
3,900,000
4,500,000
4,500,000
4,500,000
6,580,000
2016-2022
What discount rate should Worldwide Paper Company (WPC) use to
analyze those cash flows? Explain your recommended rate and the
assumptions that you...

Prokter and Gramble (PKGR) has historically maintained a
debt-equity ratio of approximately 0.23. Its current stock price is
$53 per share, with 2.9 billion shares outstanding. The firm
enjoys very stable demand for its products, and consequently it
has a low equity beta of 0.575 and can borrow at 3.7% just 20 basis
points over the risk-free rate of 3.5%.The expected return of the
market is10.1%, and PKGR's tax rate is 35%
a. This year, PKGR is expected to have...

A proposed investment has a project life of four years. The
necessary equipment will cost of $1,200, and have a useful life of
4 years. The cost will be depreciated straight-line to a zero
salvage value, but will have a market worth $500 at the end of the
project’s life. Cash sales will be $2,190 per year for four years
and cash costs will run $670 per year. Fixed cost is $176 per year.
The firm will also need to...

Suppose you manage a portfolio with a current market value of
$58,715,000. You and your analyst team actively manage a long/short
equity fund, which is benchmarking the S&P 500. Over the past
three years your fund exhibits an annual continuously compounded
return of 13.27%. Over the same period of time the S&P 500
returned an average annual continuously compounded return of
14.17%. You and your team estimate the beta of the portfolio over
the same time period using daily returns...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 10 minutes ago

asked 17 minutes ago

asked 17 minutes ago

asked 18 minutes ago

asked 24 minutes ago

asked 24 minutes ago

asked 24 minutes ago

asked 27 minutes ago

asked 28 minutes ago

asked 29 minutes ago

asked 33 minutes ago

asked 40 minutes ago