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Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 17 percent. Either method will require an initial capital outlay of $110,000. The inflows from projected business over the next five years are given next. Years Method 1 Method 2 1 $ 33,800 $ 18,800 2 33,200 29,500 3 42,100 38,100 4 34,800 38,600 5 19,200 71,200 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods.
a. Calculate net present value for Method 1 and Method 2. (Do not round intermediate calculations and round your answers to 2 decimal places.)
Net Present Value:
Method 1 $
Method 2 $
b. Which method should be selected using net present value analysis?
Michelle is attending college and has a part-time job. Once she finishes college, Michelle would like to relocate to a metropolitan area. She wants to build her savings so that she will have a nest egg to start her off. Michelle works out her budget ..
An investment will pay you $88,000 in six years. Assume the appropriate discount rate is 8 percent compounded daily. Required: What is the present value?
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What is the net present value of a commercial real estate investment with the following cash flows, if your required return is 12% of similar risk investments? The cost of retail storefront project is $500,000, but expect to be able to sell it after ..
Kinkead Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of..
Osbourne Corporation has bonds on the market with 16.5 years to maturity, a YTM of 10.6 percent, and a current price of $942. The bonds make semi-annual payments. What must the coupon rate be on the bonds?
What was the firm's 2012 operating cash flow, or OCF?
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