Calculate net present value for method

Assignment Help Financial Management
Reference no: EM131307928

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 11 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either method will require an initial capital outlay of $102,000. The inflows from projected business over the next five years are shown next. Years Method 1 Method 2 1 $ 32,100 $ 17,600 2 38,500 25,500 3 47,800 40,400 4 35,100 37,000 5 20,600 72,200 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.) b. Which method should be selected using net present value analysis? Method 1 Method 2 Neither of these

Reference no: EM131307928

Questions Cloud

The real risk-free rate of return-corporate bonds : Suppose economists have determined that the real risk-free rate of return is 3 percent and that inflation is expected to average 2.5 percent per year long into the future. A 1-year Treasury note offers a rate of return equal to 5.5 percent. You are e..
Provide the base-case and worst-case : A project has four activities (A, B, C, and D) that must be performed sequentially. The probability distributions for the time required to complete each of the activities are as follows: Activity Activity Time (weeks) Probability A 5 0.25 6 0.35 7 0...
Effective quarterly rate because of effect of compounding : You are looking at an investment that has an effective annual rate of 14.2 percent. What is the effective monthly return? Here we need to convert an EAR into interest rates for different compounding periods. Using the equation for the EAR, we get: No..
The firm expect to collect in the fourth quarter : Quiet Press has a 38-day accounts receivable period. The estimated quarterly sales for this year, starting with the first quarter are $1,200, $1,400, $1,900, and $1.200, respectively. How much does the firm expect to collect in the fourth quarter? As..
Calculate net present value for method : 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 11 percent discount rate. Calculate net..
Why whole life insurance policy requires a larger premium : Develop a set of family circumstances where each of term insurance and whole life insurance are the most appropriate type of policy to meet the consumer's needs. Explain why a whole life insurance policy requires a larger premium than a term insuranc..
End of seven years in order to deplete the account : A person deposits $10400 in an account which earns 7% compounded quarterly. At the end of 2 years the person withdraws $2600, and at the end of 5 years they withdraw $3640. How much can be withdrawn at the end of 7 years in order to deplete the accou..
Determine the amount required to settle debt at end of years : A person owes $1300 at the end of 5 years and $6550 at the end of 10 years. Due to changes in their financial situation, the person was allowed to pay $900 at the end of 3 year(s) and a final payment at the end of 13 years using 10.5% compounded annu..
Estimate of businesss optimal capital structure : Which of the following statements about the tradeoff theory of capital structure is most correct? Which of the following factors influence the estimate of a business's optimal capital structure? Which of the following statements concerning net income..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What was the fund turnover

A mutual fund sold $36 million of assets during the year and purchased $32 million in assets. If the average daily assets of the fund were $96 million, what was the fund turnover?

  What is your profit at the current exchange rate

What is your profit at the current exchange rate?- What is your profit if the exchange rate goes down by 10 percent?

  Special retirement accounts

Warren Reed just turned 40. He has decided that he would like to retire when he is 65. He thinks that he will need $1,500,000 in special retirement accounts at age 65 to maintain his current lifestyle. For the next 15 years he can afford to put $12,0..

  What is the net income

The Medicine Cabinet has a return on equity of 18.2 percent, a profit margin of 11.6 percent, and total equity of $738,000. What is the net income?

  What is the difference in the maturity risk premiums

n investor in Treasury securities expects inflation to be 2.05% in Year 1, 2.75% in Year 2, and 4.15% each year thereafter. Assume that the real risk-free rate is 1.75%, and that this rate will remain constant. What is the difference in the maturity ..

  Expansion project-requires an initial fixed asset investment

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..

  Discuss various measures of capital market efficiency

Discuss various measures of capital market efficiency and how efficient capital markets contribute to the efficiency in the market for goods and services (including productive capital). As part of your discussion, consider the implications of the fac..

  Compute the irr for project

Compute the IRR for Project F. The appropriate cost of capital is 11 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project F Time: 0 1 2 3 4 Cash flow –$10,400 $4,000 $4,830 $2,170 $2,800 IRR % Sho..

  Risk bonds being issued

Beck Industries bond has a current market price of $1060, 7% coupon, $1000 par, 10 years maturity. What is the yield to maturity? So, do similar risk bonds being issued today (at par) have a coupon rate higher or lower than Beck’s?

  What is the monthly installment to pay back the annuity loan

Many farming households in the developing world use traditional biomass, kerosene and liquefied petroleum gas (LPG) for cooking and lighting. What are the internal rate of return (IRR) and payback period of the biogas investment – considering the sav..

  Annual incentive fee according to black-scholes formula

A hedge fund with net asset value of $80 per share currently has a high water mark of $88. Suppose it is January 1, the standard deviation of the fund’s annual returns is 49%, and the risk-free rate is 5%. The fund has an incentive fee of 15%. What i..

  The inflation rate expected for the coming year

Because of a recession, the inflation rate expected for the coming year is only 3%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3%. Assume that the real risk-free rate is r* 5 2% for all maturit..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd