Chapter 24: Q1QS (page 1083)
Park Co. is considering an investment that requires immediate payment of \(27,000 and provides expected cash inflows of \)9,000 annually for four years. What is the investment’s payback period?
The payback period is computed as 3.
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After evaluating the risk of the investment described in Exercise 24-8, B2B Co. concludes that it must earn at least an 8% return on this investment. Compute the net present value of this investment. (Round the net present value to the nearest dollar.)
Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% return from its investments.
Project A Project B
Initial investment . . . . . . . . . . . . . . . . . . . . . . . . . \((160,000) \)(105,000)
Expected net cash flows in year:
1........................ 40,000 32,000
2........................ 56,000 50,000
3........................ 80,295 66,000
4........................ 90,400 72,000
5........................ 65,000 24,000
For each alternative project, compute the
(a) net present value and
(b) profitability index. (Round your answers in part b to two decimal places.) If the company can only select one project, which should it choose? Explain.
What is capital budgeting?
Siemens AG invests €80 million to build a manufacturing plant to build wind turbines. The company predicts net cash flows of €16 million per year for the next eight years. Assume the company requires an 8% rate of return from its investments.
1. What is the payback period of this investment?
2. What is the net present value of this investment?
If Quail Company invests \(50,000 today, it can expect to receive \)10,000 at the end of each year for the next seven years, plus an extra $6,000 at the end of the seventh year. What is the net present value of this investment assuming a required 10% return on investments? (Round present value calculations to the nearest dollar.)
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