Question

You have been offered a unique investment opportunity. If you invest $ 10 800 ​today, you...

You have been offered a unique investment opportunity. If you invest $ 10 800 ​today, you will receive $ 540 one year from​ now, $ 1 620 two years from​ now, and $ 10 800 ten years from now. a. What is the NPV of the opportunity if the cost of capital is 5.9 % per​ year? Should you take the​ opportunity? b. What is the NPV of the opportunity if the cost of capital is 1.9 % per​ year? Should you take it​ now?

Homework Answers

Answer #1

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=540/1.059+1620/1.059^2+10800/1.059^10

=$8042.29

NPV=Present value of inflows-Present value of outflows

=$8042.29-$10800

=($2757.71)(Approx)(Negative).

Hence since NPV is negative;opportunity must not be taken.

b.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=540/1.019+1620/1.019^2+10800/1.019^10

=$11037.17

NPV=Present value of inflows-Present value of outflows

=$11037.17-$10800

=$237.17(Approx).

Hence since NPV is positive;opportunity must be taken.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You have been offered a unique investment opportunity. If you invest $11,700 ?today, you will receive...
You have been offered a unique investment opportunity. If you invest $11,700 ?today, you will receive $585 one year from? now, $1,755 two years from? now, and $11,700 ten years from now. a. What is the NPV of the opportunity if the cost of capital is 6.7 % per? year? Should you take the? opportunity? b. What is the NPV of the opportunity if the cost of capital is 2.7 %per? year? Should you take it? now?
You have been offered a unique investment opportunity. If you invest $11,800 ?today, you will receive...
You have been offered a unique investment opportunity. If you invest $11,800 ?today, you will receive $590 one year from? now, $1,770 two years from? now, and $11,800 ten years from now. a. What is the NPV of the opportunity if the cost of capital is 5.8 % per? year? Should you take the? opportunity? b. What is the NPV of the opportunity if the cost of capital is 1.8 %1.8% per? year? Should you take it? now?
You have been offered a unique investment opportunity. If you invest 13,000 today, you will receive...
You have been offered a unique investment opportunity. If you invest 13,000 today, you will receive $650 one year from now, $1950 two years from now, and $13000 ten years from now. a. What is the NPV of the opportunity if the cost of capital is 7.1% per year? Dhould you take the opportunity? b. What is the NPV of the opportunity if the cost of the capital is 3.1% per year? Should you take it now?
You have been offered a unique investment opportunity. If you invest  $8,100 today, you will receive  $405 one...
You have been offered a unique investment opportunity. If you invest  $8,100 today, you will receive  $405 one year from now,  $1,215 two years from now, and $8,100 ten years from now. What is the NPV of the opportunity if the cost of capital is 1.2% per year?
You have been offered a unique investment opportunity. If you invest $ 8 comma 100$8,100 ​today,...
You have been offered a unique investment opportunity. If you invest $ 8 comma 100$8,100 ​today, you will receive $ 405$405 one year from​ now, $ 1 comma 215$1,215 two years from​ now, and $ 8 comma 100$8,100 in ten years.a. What is the NPV of the opportunity if the cost of capital is 6.7 %6.7% per​ year? Should you take the​ opportunity?b. What is the NPV of the opportunity if the cost of capital is 2.7 %2.7% per​ year?...
You have been offered a very long-term investment opportunity to increase your money one hundredfold. You...
You have been offered a very long-term investment opportunity to increase your money one hundredfold. You can invest $800 today and expect to receive $80,000 in 40 years. Your cost of capital for this (very risky) opportunity is 23%. What does the IRR rule say about whether the investment should be undertaken? What about the NPV rule? Do they agree? What is the IRR?
You became very successful just recently and are looking for some promising investment. You have been...
You became very successful just recently and are looking for some promising investment. You have been offered the following investment opportunity in China: if you invest $18,000 today, you will receive $6,000 two years from now, $8,000 four years from now, and $8,000 six years from now. a) What is the NPV of the opportunity if the interest rate is 4% per year? Should you take this opportunity? b) What is the NPV of the opportunity if the interest rate...
Question #8: You are offered the following investment opportunity: • Invest $425 today • Receive $100...
Question #8: You are offered the following investment opportunity: • Invest $425 today • Receive $100 at the end of Year 1; receive $200 at the end of year 3; and receive $350 at the end of Year 6 • You want to earn a required return of 13% Required: a) Should you invest in this opportunity? b) Why or Why not?
You have been offered a very long-term investment opportunity to increase your money one hundredfold. You...
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...
Ch 7 You have been offered a very​ long-term investment opportunity to increase your money one...
Ch 7 You have been offered a very​ long-term investment opportunity to increase your money one hundredfold. You can invest $ 1,000 today and expect to receive $ 100,000 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? What is the IRR​? The IRR of this investment opportunity is _______%