Question 1

The Radium Hot Springs plans to install a swimming pool.Construction of the lift is estimated to require an immediate outlay of $420 000.The life of the pool is estimated to be 20 years with a salvage value of $20 000.Cost of preparing the area is expected to be $30 000 for each of the first 2 years of operation.Net cash inflows from the pool are expected to be $49 000 for each of the first five years and $90 000 for each of the following 15 years.Find the rate of return (correct to the nearest tenth of a percent).

Accepted Answer

The answer of The Radium Hot Springs plans to install...

Question 2

A local community church is contemplating installment of solar cells on its roof and sell the access electricity to the Ontario grid via a power purchase agreement.The project requires an initial investment of $75 000 with a residual value of $2000 after 10 years.It is estimated to yield annual net returns of $15 000 for 10 years.What is the NPV of the project given a rate of return of 7%?

Accepted Answer

A) -$31 370 
B) $32 387 
C) $31 370 
D) -$32 387 
E) $1017

Question 3

An expenditure may be met by outlays of $1700 now and $2210 at the end of every six months for 6 years or by making monthly payments of $500 in advance for seven years.Interest is 11% compounded annually.
Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion.

Accepted Answer

The answer of An expenditure may be met by outlays...

Question 4

A piece of property may be acquired by making an immediate payment of $125 000 and payments of $37 500 and $50 000 three and five years from now respectively.Alternatively,the property may be purchased by making quarterly payments of $11 150 in advance for five years.Which alternative is preferable if money is worth 12.2% compounded semi-annually?

Accepted Answer

The answer of A piece of property may be acquired...

Question 5

A company is considering a project that will require a cost outlay of $17 200 per year for 3 years.At the end of the project the salvage value will be $15 000.The project will yield returns of $60 000 in Year 4 and $20 000 in Year 5.There are no returns after Year 5.Alternative investments are available that will yield a return of 14.2%.Should the company undertake the project?

Accepted Answer

The answer of A company is considering a project that...

Question 6

Replacing old equipment at an immediate cost of $75 000 and an additional outlay of $10 000 six years from now will result in savings of $3120 per quarter for 11 years.The required rate of return is 11.4% compounded annually.Use the net present value method to determine whether the company should replace old equipment or not.

Accepted Answer

The answer of Replacing old equipment at an immediate cost...

Question 7

Donna and Keith want to sell their business.They have received two offers.If they accept Offer A they will receive $61 000 immediately and $20 000 in three years.If the accept Offer B they will receive $37000 now and $3000 at the end of every six months for 5 years.If interest is 6.67%,which offer is preferable?

Accepted Answer

The answer of Donna and Keith want to sell their...

Question 8

Suppose you are offered two investment alternatives.If you choose Alternative 1,you will have to make an immediate outlay of $26 000.In return,you will receive $1500 at the end of every three months for the next ten years.If you choose Alternative 2,you will have to make an outlay of $14 000 now and $8000 in two years.In return,you will receive $60 000 ten years from now.Interest is 8.22% compounded semi-annually.Compute the net present value for each alternative and determine which investment should be accepted or rejected according to the net present value criterion.

Accepted Answer

The answer of Suppose you are offered two investment alternatives.If...

Question 9

Kevin needs to decide whether to buy a Honda Civic for $19 900 with a salvage price of $6500 after 5 years or lease the car for 5 years making monthly payments of $269 at the beginning of each month.If money is worth 5% compounded annually,should Kevin buy or lease?

Accepted Answer

The answer of Kevin needs to decide whether to buy...

Question 10

Korea Nuclear tritium removal facility (TRF)project requires an immediate investment of $33 million with a residual value of $7 million at the end of the project.It is expected to yield a net return of $1 million in Year 1 from the sale of immobilized tritium to ITER,$5 million dollars in Year 2,$8 million per year for the following six years,and $7 million per year for the remaining four years.Find the rate of return using Excel's IRR function.

Accepted Answer

The answer of Korea Nuclear tritium removal facility (TRF)project requires...

Question 11

A wireless telephone system with a disposable value of $5 000 after five years can be purchased for $15 000.Alternatively,a leasing agreement is available that requires an immediate payment of $2000 plus payments of $100.00 at the beginning of each month for five years.If money is worth 6% compounded monthly,should the telephone system be leased or purchased?

Accepted Answer

The answer of A wireless telephone system with a disposable...

Question 12

The introduction of a new product requires an immediate outlay of $145 000 and has a residual value of $30 000 after 10 years.The anticipated net returns from the marketing of the product are expected to be $25 500 per year for ten years.What is the rate of return on the investment (correct to the nearest tenth of a percent)?
a)Use linear interpolation to find the approximate value of the rate of return.
b)Find the answer using Cash Flow and IRR.

Accepted Answer

The answer of The introduction of a new product requires...

Question 13

A new car costs $21 000.Alternatively,the car can be leased for three years by making payments of $360 at the beginning of each month and can be bought at the end of the lease for $10 000.If interest is 8% compounded semi-annually,which alternative is preferable?

Accepted Answer

The answer of A new car costs $21 000.Alternatively,the car...

Question 14

A special chemical development project requires an immediate outlay of $110 000 and $50 000 at the end of each year for 3 years.Net returns are nil for the first 3 years and $60 000 per year thereafter for fourteen years.What is the net present value of the project at 17%?

Accepted Answer

The answer of A special chemical development project requires an...

Question 15

An investment project requires an initial expenditure of $160 000.00 with a salvage value of $30 000.00 after ten years.It is estimated that it will have annual returns of $21 000.00 for ten years.Should the company undertake this project if it wants to achieve a 9% rate of return?

Accepted Answer

The answer of An investment project requires an initial expenditure...

Question 16

A company is considering a project that will require a cost outlay of $30 000 per year for three years.At the end of the project,the company expects to salvage the physical assets for $50 000.The project is estimated to yield net returns of $60 000 in Year 4,$40 000 in Year 5,and $15 000 for each of the following five years.Alternative investments are available yielding a rate of return of 14.5%.Compute the net present value of the project.

Accepted Answer

The answer of A company is considering a project that...

Question 17

A new venture that requires outlays of $127 000 for each of the first two years will yield net returns of $85 000 in each year for years 3 to 6 and $70 000 for each of the following four years.A residual value of $130 000 can be recovered at the end of the last income period.Should the venture be undertaken if a yield of 11.56% is required?

Accepted Answer

The answer of A new venture that requires outlays of...

Question 18

A project requires an initial outlay of $100 000 and promises net returns of $18 500 per year over a twelve-year period.If the project has a residual value of $4000 after twelve years,what is the rate of return?

Accepted Answer

The answer of A project requires an initial outlay of...

Question 19

A house is on sale in Markham.Marlene has an option to pay $575 000 lump sum or pay $6000 at the end of every month for the next 10 years.If money earns 5% compounded monthly,which option has a better economic advantage?

Accepted Answer

A) Paying monthly has an advantage of $9312 in PV 
B) Paying lump sum has an advantage of $9312 in PV 
C) Paying monthly has an advantage of $85 129 in PV 
D) Paying lump sum has an advantage of $85 129 in PV 
E) Both options are the same.Choose any.

Question 20

An obligation can be settled by making a payment of $16 000 now and a final payment of $30 000 in 3 years.Alternatively,the obligation can be settled by payments of $2500 at the end of every three months for four years.Interest is 12% compounded quarterly.
Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion.

Accepted Answer

The answer of An obligation can be settled by making...

Exam 16: Investment Decision Applications