The following data relate to two investment projects, only one of which may be selected: Initial capital expenditure Profit per year Year 1 Year 2 Year 3 Year 4 Expected resale value at end of year 4 Note: Project Luthuli R'000 Project Madiba R'000 45 000 45 000 22 500 9 000 18 000 9000 13 500 21 500 9 000 23 500 9 000 0 Note: Profit is calculated after deducting straight-line depreciation The cost of capital is 15% - Profit is calculated after deducting straight-line depreciation -The cost of capital is 15%

The following data relate to two investment projects, only one of which may be selected: Initial capital expenditure Profit per year Year 1 Year 2 Year 3 Year 4 Expected resale value at end of year 4 Note: Project Luthuli R'000 Project Madiba R'000 45 000 45 000 22 500 9 000 18 000 9000 13 500 21 500 9 000 23 500 9 000 0 Note: Profit is calculated after deducting straight-line depreciation The cost of capital is 15% - Profit is calculated after deducting straight-line depreciation -The cost of capital is 15%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A firm has projected the following financials for a possible project: YEAR Sales Cost of Goods S&A Depreciation Investment in NWC Investment in Gross PPE 0 1,163.00 104,285.00 1 125,285.00 2 62,893.00 62,893.00 20,857.00 125,285.00 30,000.00 30,000.00 526.00 526.00 3 125,285.00 4 125,285.00 30,000.00 30,000.00 20,857.00 20,857.00 20,857.00 What is the NPV of the project? (Hint: Be careful about rounding the WACC here!) 62,893.00 62,893.00 62,893.00 526.00 5 526.00 125,285.00 30,000.00 20,857.00 526.00 The firm has a capital structure of 46.00% debt and 54.00% equity. The cost of debt is 10.00%, while the cost of equity is estimated at 13.00%. The tax rate facing the firm is 38.00%. (Assume that you can't recover the final NWC position in year 5. i.e. only consider the change in NWC for each year)
You are given the following data for a project that is to be evaluated using the APV method. Year EBIT CAPEX Depreciation Increase in NWC Year-end net debt $80,000 O $201.765 O $185,617 O $193,822 0 O$222,872 Cost of net debt-8% Unlevered cost of capital = 11.8% Corporate tax rate = 30% Calculate the total value of the project at t = 0, using the APV method. O $213,918 1 $127,000 $60,000 $72,000 $50,000 $100,000 2 $133,000 $40,000 $80,000 $60,000 $140,000 3 $138,500 $10,000 $84,000 $30,000 $140,000
Question three For each of the following projects compute (i) pay-back period, (ii) post payback profitability and (iii) post-back profitability index Initial outlay 50,000,000 Annual cash inflow (after tax but before depreciation) Shs .10,000,000 Estimated life 8 Years Initial outlay 50,000,000 Annual cash inflow (after tax but before depreciation) First three years Shs .15,000,000 Next five years Shs. 5,000,000 Estimated life 8 Years Salvage Shs. 8,000,000
You are given the following data for a project that is to be evaluated using the APV method. Year EBIT CAPEX 0 O $201.765 O $193,822 O $185,617 O $222,872 O $213,918 1 $127.000 $60,000 2 Depreciation Increase in NWC Year-end net debt $80,000 Cost of net debt = 8% Unlevered cost of capital = 11.8% Corporate tax rate = 30% Calculate the total value of the project at t = 0. using the APV method. $72,000 $50,000 $100,000 $133,000 $40,000 $80,000 $60,000 $140,000 3 $138.500 $10,000 $84,000 $30,000 $140,000
A potential project involves an initial investment in machinery of RO.1,000,000 and has the following cash inflows:Year 1 – RO.250,000Year 2 – RO.350,000Year 3 – RO.200,000Year 4 – RO.400,000At the end of year 4, the machinery will be sold for RO.600,000.Calculate the accounting rate of return based on average investment.NOTE (DEDUCT THE DEPRECIATION TO ARRIVE AT THE CORRECT AVERAGE PROFIT) a. None of the options b. 35% c. 20% d. 25% Clear my choice
REQUIRED Study the information given below and calculate the Accounting Rate of Return on initial investment (expressed to two decimal places) of each project. INFORMATION The following data relate to two investment projects, only one of which may be selected: Project A Project B R R Initial capital expenditure 180 000 180 000 Net cash inflow per year: Year 1 90 000 36 000 Year 2 72 000 36 000 Year 3 54 000 86 000 Year 4 36 000 94 000 Expected scrap value (not included in the figures above) 36 000 0 Note: Depreciation is calculated using the straight-line The cost of capital is 15%. REQUIRED Use the capital asset pricing model to calculate the cost of the ordinary shares from the information provided below. INFORMATION The financial managers of Computex have…
A company is evaluating an investment. The company uses the straight-line method of depreciation. Use the following information to compute the accounting rate of return. Show your calculations and round to one decimal place. Project Investment SR875,000 Residual value 0 Operating income: Year 1 120,000 Year 2 120,000 Year 3 120,000 Year 4 120,000 Year 5 120,000
Compute for the benefit ratio of the following projects. Project cost Gross income Operating cost Life of project Interest rate O a. 1.20 O b. 1.70 O c. 1.07 O d. 1.02 5,000,000 2,000,000 1,000,000 20 years 10%
A project has the following net profit after tax set out below. The average book value of the assets in the project is 131,028. What is the accounting rate of return of this project? Enter your final answer in decimals to four decimal places (e.g., if your answer is 5.55%, then enter 0.0555). Year Net Profit After Tax 1 5,097 2 7,365 3 8,627 4 10,946
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -$ 15,900 -$ 15,900 1 6,710 7,290 2 7,290 7,730 3 4,810 3,630 a. What is the IRR of Project X? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim b. What is the IRR of Project Y? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim c. What is the crossover rate for these two projects? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim a. IRR b. IRR % % c. Crossover rate %
Complete the projected income statement for the first five years of the project. Fill in the following details , Determine the PAT of the project as a banker will you finance them on the basis of PAT Year 1 2 3 4 Capacity utilization (%) 55 65 75 85 85 Sales Operating expenses Material Salaries Marketing & other 119 137 155 173 173 expenses PBDIT Depreciation 236.92 180.10 137.38 105.20 80.98 Prelm. Exp. Wloff 10 10 10 10 10 PBIT Int. on TL Int. on WC loan 4.50 4.50 4.50 4.50 4.50
Company A has provided figures for two investment projects, only one of which may be chosen. These are the calculations based on the figures: Payback Period The Accounting Rate of Return / Return on Capital Employed Net Present Value Project A 2 years 4 months 27.08% £63,705 Project B 2 years 7 months 39.47% £74.971 Analyse and provide recommendations as to what project needs to be chosen based on the calculations above.

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