Reference no: EM133070815
1) Your storage firm has been offered $96,600 in one year to store some goods for one year. Assume your costs are $96,100?, payable? immediately, and the cost of capital is 8.1%. Should you take the? contract?
2) You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $9.9 million today and $5.3 million in one year. The government will pay you $20.4 million in one year upon the? building's completion. Suppose the interest rate is 10.9%.
a. What is the NPV of this? opportunity?
b. How can your firm turn this NPV into cash? today?
3) You have been offered a unique investment opportunity. If you invest $8,700 ?today, you will receive $435 one year from? now, $1,305 two years from? now, and $8,700 ten years from now.
a. What is the NPV of the opportunity if the cost of capital is 6.7% per? year? Should you take the? opportunity?
b. What is the NPV of the opportunity if the cost of capital is 2.7% per? year? Should you take it? now?
4) Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.06 million. Your discount rate for this contract is 8.4%.
a. What does the NPV rule say you should? do?
b. If you take the? contract, what will be the change in the value of your? firm?
5) You are considering opening a new plant. The plant will cost $100.0 million up front and will take one year to build. After that it is expected to produce profits of $30.0 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8.0%. Should you make the? investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
6) You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $4,800 and will be posted for one year. You expect that it will generate additional revenue of $864 a month. What is the payback? period?
7) Your factory has been offered a contract to produce a part for a new printer. The contract would last for three? years, and your cash flows from the contract would be $4.92 million per year. Your upfront setup costs to be ready to produce the part would be $7.91 million. Your discount rate for this contract is 8.1%.
a. What is the? IRR?
b. The NPV is $4.75 ?million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV? rule?
8) Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $4.92 million. The product is expected to generate profits of $1.18 million per year for ten years. The company will have to provide product support expected to cost $93,000 per year in perpetuity. Assume all profits and expenses occur at the end of the year.
a. What is the NPV of this investment if the cost of capital is 5.7%?? Should the firm undertake the? project? Repeat the analysis for discount rates of 1.1% and 17.7%?, respectively.
b. What is the IRR of this investment? opportunity?
c. What does the IRR rule indicate about this? investment?