What is the net present value of the project

Assignment Help Financial Management
Reference no: EM13923045

Suppose Palmer Properties is considering investing $2.6 million today (i.e., C0 = -2,600,000) on a new project that is expected to last for 7 years. The project is expected to generate annual cash flows of C1 = -250,000; C2 = 300,000, C3 = 500,000 and then $800,000 for period C4 through C7. If the discount rate is 8% and management’s payback period cutoff is 5 years:

(a) What is the payback period for the project? Show your work

(b) What is the net present value of the project? Show your work

(c) What is the internal rate of return on the project? Show your work

(d) Under which method(s) above should the company accept the project (applying the acceptance rules)? Explain

Reference no: EM13923045

Questions Cloud

Retirement plan by considering two investment plans : Assume that you are setting up your retirement plan by considering two investment plans together. (Your retirement in 30 years). You want to earn a total of $1,000,000 after 30 years from the following two investment plans together. You currently hav..
Use the gordon growth model to estimate value of corporation : Suppose Whole Foods’ projected free cash flow for next year is FCF = $8.75 billion, and due to expected lower revenues and slower growth sales FCF is expected to grow at a constant rate of only 4.5% into the infinite future. The company’s weighted av..
What is the maximum initial cost the company : Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.76 million at the end of the first year, and these savings will grow at a rate of 3 percent per year indefinitely. What is the maximum initial cost the co..
Use the equivalent annual annuity method : The company is choosing between machine A and B (they are mutually exclusive and the company can only pick one). The initial cost of machine A is $400,000 and it will last for 7 years before it needs to be replaced. Which machine is a better choice f..
What is the net present value of the project : Suppose Palmer Properties is considering investing $2.6 million today (i.e., C0 = -2,600,000) on a new project that is expected to last for 7 years. The project is expected to generate annual cash flows of C1 = -250,000; C2 = 300,000, C3 = 500,000 an..
What is percentage change in price of bond : Both bond A and bond B have 8.4 percent coupons and are priced at par value. Bond A has 7 years to maturity, while bond B has 18 years to maturity. a. If interest rates suddenly rise by 1.2 percent, what is the percentage change in price of bond A an..
What is the macaulay duration coupon bond : What is the Macaulay duration of a 5.2 percent coupon bond with eight years to maturity and a current price of $1,053.10? What is the modified duration?
What is the maximum loss on your position : You bought 100 Google Shares for $400. You also bought 1 put option on Google with a strike of $395 for $20. What is the maximum loss on your position? What is the profit on your position when the stock hits $440?
Tax research-regulations and court cases : During the current year, M sold a piece of real estate. The sale produced a recognized gain of $50,000. He had held the real estate for the five-year period preceding the sale. M's prinicipal trade or business is that of an attorney. Over the two-yea..

Reviews

Write a Review

Financial Management Questions & Answers

  What fraction of payment made at end of second year

Your company is planning to borrow $1.5 million on a 7-year, 8%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal?

  What is the projects annual operating cash flow

Spears’ project is expected to generate net annual sales revenue of $6,000,000 at the end of each of the next four years. The new equipment costs a total amount of $4,000,000. Total operating costs (fixed and variable costs excluding depreciation) ar..

  How to get the holding period return for a 980 selling

how to get the holding period return for a 980 selling security that purchased fiver years before at 798?prove that

  What must the expected return on this stock be

A stock has a beta of 1.28, the expected return on the market is 12 percent, and the risk-free rate is 4.5 percent. What must the expected return on this stock be?

  What will bling diamonds cash dividend be in seven years

Four years ago, Bling Diamond, Inc., paid a dividend of $1.95 per share. Bling paid a dividend of $2.37 per share yesterday. Dividends will grow over the next five years at the same rate they grew over the last four years. Thereafter, dividends will ..

  Financial planning process after firm develop sales forecast

What is the next step in the financial planning process after a firm develops a sales forecast?

  Generate no internal equity for the foreseeable future

Southern Alliance Company needs to raise $55 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. What is the true initial cost figure Southern should u..

  What is the value of the cash coverage ratio

A firm has sales of $3,600, costs of $2,800, interest paid of $100, and depreciation of $400. The tax rate is 34%. What is the value of the cash coverage ratio?

  Fundamental factors of your selected bank

Examine the fundamental factors of your selected bank. On the basis of this fundamental analysis and other methods of share valuation, determine if your selected bank is overvalued or undervalued.

  What is the maturity risk premium

Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly's bonds is DRP = 0.40%, the liquidity premium on Kelly's bonds is LP = 2.6% versus zero on T-bonds, and the ..

  Fifth national bank just issued some new preferred stock

Fifth National Bank just issued some new preferred stock. The issue will pay an annual dividend of $24 in perpetuity, beginning 13 years from now. If the market requires a return of 3.8 percent on this investment, how much does a share of preferred s..

  Average consistently positive abnormal returns

Suppose you find that prices of stocks before large dividend increases show on average consistently positive abnormal returns. Is this a violation of the EMH?

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