Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem 2-13 Present values Lofting Snodbury is considering investing in a new boring machine. It costs $414,000 and is expected to produce the following cash
Problem 2-13 Present values Lofting Snodbury is considering investing in a new boring machine. It costs $414,000 and is expected to produce the following cash flows: Year Cash flow (5000) 1 69 2 76 3 4 113 118 5 6 7 104 111 111 8 118 9 87 10 69 If the cost of capital is 13%, what is the machine's NPV? (Do not round Intermediate calculations. Enter your answer in whole dollars rounded to 2 decimal places.) Net present value Problem 2-15 Present values Suppose you own a small company that is contemplating construction of a suburban office block. The cost of buying the land and constructing the building is $720,000. Your company has cash in the bank to finance construction. Your real estate adviser suggests that you rent out the building for two years at $31.000 a year and predicts that at the end of that time you will be able to sell the building for $848,000. Thus there are now two future cash flows--a cash flow of C = $31.000 at the end of year 1 and a further cash flow of C, - ($31,000+ 848,000) = $879,000 at the end of the second year. a. Calculate the NPV of the office building venture at interest rates of 6, 11, and 16% (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Net present value at 5% Net present value at 10% Net present value at 15% b. At what discount rate (approximately) would the project have a zero NPV? Check your answer by calculating the NPV at your approximate rate; it should be close to zero. (Enter your answer as a percent rounded to the nearest whole number.) Approximate discount rate
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started