What is the profitability index on this investment

Assignment Help Financial Management
Reference no: EM131919759

Suppose you have developed the following information for a potential investment:

Current market value is $1,200,000; anticipated loan to value ratio I s .80 with 2 points; and predicated cash flows of

ATCF1 = $38,560

ATCF2 = $41,780

ATCF3 = $37,210

ATCF4 = $39,127

ATER4 = $191,730

Further, assume the investor's minimum required after-tax rate of return on equity is 12%.

Please solve showing all steps:

a. What is the internal rate of return on this potential investment?

b. What is the profitability index on this investment?

Reference no: EM131919759

Questions Cloud

What barriers do you perceive in asking for feedback : Many managers assume that if an employee is not performing well, the reason must be lack of motivation. What is the problem with this assumption?
Categorize payments to foreign officials as investment : In what ways does the theory of finance categorize payments to foreign officials as an investment?
What difference do notice among dasani fiji and tap water : Based on the results of your experiment, what specific differences do you notice among the Dasani, Fiji, and Tap Water?
Prepare a thesis on Macy Inc firm : Prepare a 20-page thesis, firm: Macy's Inc (M), Topic: Forecast where the revenue, earnings, and stock price of your assigned firm will be 5 years from now
What is the profitability index on this investment : What is the internal rate of return on this potential investment? What is the profitability index on this investment?
Resource allocation-good job or poor job : In the credit derivatives boom were the markets doing a good job of determining prices and allocating resources?
Review problem of dale dance studio : Dale's Dance Studio currently has three full-time instructors who are each paid $2,500 per month. A dance instructor can only work a maximum of 100 hours.
What do you suggest to trexoid management : Trexoid Inc. makes a popular video game console. Demand varies each month, with highest demand coming in the last quarter of the year.
What is the expected profit for the optimal option : You are responsible for constructing a new building. What is the expected profit for the optimal option, rounded to the nearest tenth of a dollar?

Reviews

Write a Review

Financial Management Questions & Answers

  Cash in the business in exchange for common stock

Kristin Malone opened Kristin's Maids Cleaning Service on July 1, 2017. During July, the company completed the following transactions. July 1 Stockholders invested $14,000 cash in the business in exchange for common stock. 31 Paid gasoline for the mo..

  Obtain the cost of the equity capital

If the RTY Corp. follows CAPM and has a beta of 2.0, and the market ans risk-free rate of return are 14 and 8 percent, respectively. Obtain the cost of the equity capital for the RTY Corporation.

  What is the potential gross income

what is the potential gross income?

  Working capital will revert back to normal

Your firm is contemplating the purchase of a new $749,000 computer-based order entry system. The system will be depreciated straight-line to zero over its seven-year life. It will be worth $45,000 at the end of that time. Working capital will revert ..

  What is the present value of the quarterback contract

What is the PV of the receiver's contract? What is the PV of the quarterback's contract?

  Calculate the apr and r ear assuming the loan

Calculate the APR and r EAR assuming the loan is a simple interest loan

  Based on the present worth should the tunnel be built

Based on the present worth, should the Tunnel be built?

  Rate of return does each bond offer over five year period

What rate of return does each bond offer over the 5-year period?

  Most important factors in creating business valuation

Often business owners are very disappointed when someone does a valuation of their business.  The business owners will say things like "I haven't taken a paycheck in five years" and "I work seven days a week to keep this business running." what are t..

  Frick recognize on the redemption of these bonds

On January 1, year 13, Frick Inc. redeemed its fifteen-year bonds of $500,000 par value for 102. They were originally issued on January 1, year 1, at 96 with a maturity date of January 1, year 16. The bond issue costs relating to this transaction wer..

  The current amount of money that must be invested

The current amount of money that must be invested is how much?

  What will the price be in six years and in thirteen years

Gilmore, Inc., just paid a dividend of $2.70 per share on its stock. The dividends are expected to grow at a constant rate of 4.5 percent per year, indefinitely. Assume investors require a return of 9 percent on this stock. What will the price be in ..

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