Makes any difference in the net present value of project

Assignment Help Financial Management
Reference no: EM131354453

Dennis wants to determine if the discount rate really makes any difference in the net present value of a project. He feels that if a project is acceptable at one rate of return, it will be acceptable at all rates of return. To explain why his thinking is incorrect, you are creating an example to illustrate your point. The cash flows you are using are as follows: time zero is -$71,000, years 1 through 4 are $17,500 each, and years 5 and 6 are $22,500 each. What is net present value at a discount rate of 12 percent and 17 percent?

Reference no: EM131354453

Questions Cloud

A fragmented industry : Which of hte following is not one of the central questions in evaluating a company's business prospects? A fragmented industry
Calculate payback period for investment under each option : Your Company is evaluating the acquisition of a new piece of equipment that has an installed cost of $ 10,000,000. The equipment will add $2,000,000 to earnings before interest and taxes each year for the next 12 years. Calculate the payback period f..
What rate of interest will you be earning : Your broker offers to sell you a note for $13,250 that will pay $2,345.05 per year for 10 years. If you buy the note, what rate of interest (to the colsest percent) will you be earning?
What generic strategy is seen as a recipe for mediocrity : What generic strategy is seen as a recipe for mediocrity? Given the following data, how do you calculate what the annual dividend for each year at 40% constant payout ratio?
Makes any difference in the net present value of project : Dennis wants to determine if the discount rate really makes any difference in the net present value of a project. He feels that if a project is acceptable at one rate of return, it will be acceptable at all rates of return. What is net present value ..
Insured under commercial general liability policy : Lastovica Construction is insured under a commercial general liability (CGL) policy. The firm agreed to build a new manufacturing facility for the Jones Corporation. A heavy machine used by Lastovica Construction accidentally fell from the roof of a ..
Which will be paid at the end of the year : What price would you expect to pay for a stock with 13% required rate of return, 4% rate of dividend growth, and an annual dividend of $2.50 which will be paid at the end of the year?
What is the operating cash flow : How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume a 10% interest rate and cash flows at end of period. A firm has revenue of $50,000, the cost of goods sold is $23,000, other expenses (selling and a..
What rate of return will be earned by investor : bond that pays coupons annually is issued with a coupon rate of 4.1%, maturity of 25 years, and a yield to maturity of 7.1%. What rate of return will be earned by an investor who purchases the bond and holds it for 1 year if the bond’s yield to matur..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What was the average real return on crash-n-burns stock

You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 3 percent, -11 percent, 27 percent, 21 percent, and 14 percent. The average inflation rate over this period was 3.9 percent and the average T-bill rate w..

  What is its accounts receivable balance

Baker Brothers has a DSO of 32 days, and its annual sales are $4,380,000. What is its accounts receivable balance? Assume that it uses a 365-day year.

  Compute the eac for both machines

You are evaluating two different silicon wafer milling machines. The Techron I costs $237,000, has a three-year life, and has pretax operating costs of $62,000 per year. The Techron II costs $415,000, has a five-year life, and has pretax operating co..

  What does the market believe will be the stocks price

Crisp Cookware's common stock is expected to pay a dividend of $3 a share at the end of this year (D1 = $3.00); its beta is 0.8; the risk-free rate is 5.2%; and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, ..

  Deferred tax liability-capital gains offer over dividends

Goodwin Technologies, a relatively new company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. "Investors prefer the deferred tax liability that ca..

  What is the value the call option

The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What long position in the stock is necessary to hedge a short call option when the stri..

  Quantitative problem-investor plans to hold the stock

The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 3% rate after Year 5. The firm has $26 million of market-value debt, but it has no preferred stock or any other outstanding claims. According to the valua..

  Firms current risk based on any method for assessing risk

General Forge and Foundry Co. is considering investing in a project in which the risk is greater than the firms current risk based on any method for assessing risk. Which of the following should management do when evaluating this project?

  Result in the highest expected payoff to the firm

The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 40 percent chance of success. For $90.000, the manager can conduct a focus group that will increase the product's chance of ..

  States of nature alternatives good economy fair economy

You are considering opening a designer shoe store at The Summit. Available space allows you the possibility to build a large store, a smaller store, or no store at all. Here is the table: States of Nature Alternatives Good Economy Fair Economy Poor E..

  Shares of common stock outstanding

Roth Corp. wants to raise $4.4 million via a rights offering. The company currently has 540,000 shares of common stock outstanding that sell for $42 per share. Its underwriter has set a subscription price of $30 per share and will charge the company ..

  Differentiation based competitive advantage

Which of the following set of actions are unlikely to help a company achieve a differentiation based competitive advantage over some/many of its camera rivals when it comes to assembling and marketing multi-featured camera?

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