You are evaluating a project that costs $ 75,000 today. The project has an inflow of $
Question:
You are evaluating a project that costs $ 75,000 today. The project has an inflow of $ 155,000 in one year and an outflow of $ 65,000 in two years. What are the IRRs for the project? What discount rate results in the maximum NPV for this project? How can you determine that this is the maximum NPV?
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
The equation for the IRR of the project is 0 75000 1550001IRR 650001IRR 2 From Descartes Rule of Sig...View the full answer
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
Students also viewed these Corporate Finance questions
-
You are evaluating a project that will cost $500,000, but is expected to produce cash flows of $125,000 per year for 10 years, with the first cash flow in one year. Your cost of capital is 11% and...
-
You are evaluating a project that saves $21,000 per year for the next 3 years. The project requires a machine that costs $45,000. The machine has a CCA rate of 35% and salvage value of $5,400. The...
-
A project that costs $2,100 to install will provide annual cash flows of $560 for the next 5 years. The firm accepts projects with payback periods of less than 5 years. a-1. What is this project's...
-
The species-area curve tells us that slowing or halting___________ ___________ will potentially slow the rate of extinction.
-
After collecting IQ scores from hundreds of subjects, a box plot is constructed with this five-number summary: 82, 91, 100, 109, 118. If one of the subjects is randomly selected, find the probability...
-
Read the following information about the number of fatal accidents for the transportation industry in a specific year, and answer each question. 1. Name the variables under study. 2. Categorize each...
-
How to develop a litigation strategy?
-
Intuit Inc. develops and sells software products for the personal finance market, including popular titles such as Quicken and TurboTax. Classify each of the following costs and expenses for this...
-
The following property and equipment section was obtained from a recent Abbott Laboratories 10-K. Property and equipment, at cost Land... Buildings... $ 370,949 2,655,356 Equipment... Construction in...
-
George Pharmacy is a pharmaceutical salesman who has been very successful at his job in the last few years. Unfortunately, his family life has not been very happy. Three years ago, his only child,...
-
Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for Nagano Golf is 15 percent. Project A: Nagano NP- 30. Professional clubs that...
-
An investment under consideration has a payback of six years and a cost of $ 434,000. If the required return is 12 percent, what is the worst- case NPV? The best-case NPV? Explain. Assume the cash...
-
Convince yourself that is also a representation of the δ-function as ε 0. pe(x) = Tere e-{()* V22
-
Assume that Bernie is married and his wife consents to the same gifts as in the question above. ( in cash,: $ 1 1 5 , 0 0 0 to Donald; $ 1 5 , 0 0 0 to Elizabeth; $ 5 , 0 0 0 to Amy; $ 2 0 , 0 0 0 to...
-
The 304 stainless steel post A has a diameter of d 2 in. and is surrounded by a red brass C83400 tube B. Both rest on the rigid surface. If a force of 5 kip is applied to the rigid cap, determine the...
-
How do disturbances in respiratory processes, such as mitochondrial dysfunction or impaired gas exchange, contribute to pathological conditions like metabolic disorders or respiratory diseases ?
-
Question 1: Given a binary tree and an integer targetSum, return true if the tree has a root-to-leaf path such that adding up all the values along the path equals targetSum. Note: A leaf is a node...
-
Two gray surfaces with emmissivities &=0.95 and 2=0.6 are located as shown in the figure. The temperature of the plate 1 T=527 K and temperature of the plate 2 is T2=827 K. Calculate the radiation...
-
cis-Platin is an anticancer drug with a three-dimensional structure that can be viewed on the Internet. (a) What are the formula and systematic name for the compound cis-platin? (b) Draw any isomers...
-
Juanita owns a home in Richardson, TX. She purchases a Homeowners Policy (HO-3) from Farm State Ins. Co. The policy provides $100,000 in liability coverage (coverage E) and $5,000 in Med Pay coverage...
-
If one of the two general poles of an underdamped second-order system is given by \[s=-\sigma_{d}+j \omega_{d}\] (a) Show that the natural frequency \(\omega_{n}\) is given by...
-
What are the prices of a call option and a put option with the following characteristics? Stock price = $79 Exercise price = $75 Risk-free rate = 4% per year, compounded continuously Maturity = 3...
-
A put option and a call option with an exercise price of $80 expire in four months and sell for $7.05 and $11.74, respectively. If the stock is currently priced at $84.17, what is the annual...
-
A put option and a call option with an exercise price of $50 and three months to expiration sell for $3.87 and $4.89, respectively. If the risk-free rate is 2.7 percent per year, compounded...
-
Convert the following numbers (Show the steps of your work): a. Ox23734 Binary: Decimal: b. Ob01100011 Hex: Decimal: c. 12345 Hex: Binary:
-
Find the total number of compounding periods and the interest rate per period for the investment. Nominal Term of Investment Interest (Annual) Rate (%) Compounded Compounding Periods Rate per Period...
-
b) Find the solution of the following recurrence relations with the given initial conditions. Apply the iterative approach. anan-1+2n+3, ao = 4
Study smarter with the SolutionInn App