FINE 2000 Chapter Notes - Chapter 8: Gm High Feature Engine, Net Present Value

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limegoldfish227

8 Jun 2016

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Npv = pv of cash flows initial investment: expected rate of return given up by investing in a project is the opportunity cost of capital. 1: ct = cash flow at time t, r = opportunity cost of capital. Npv rule: accept all projects with a positive npv. Payback period: amount of time taken for the cash flows to cover the initial investment in the project. Discounted payback period: discounting cash flows into present value dollars: cash flow / (1+r)t. Irr: internal rate of return discount rate at which the npv of the project equals 0. Multiples rates of return results in cash flows changing direction, more than 1 discount rate where npv=0, thus resulting in multiple irrs. So the irr rule won"t work, but the. Investment timing decision: choosing what investment is more ideal given the time and cost it takes to complete the projects; choose the investment that results in the highest.

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Question 61 pts

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Thank you!

ochregnat997

1) Our company is considering a project that will provide the following after tax cash flows to the firm: CF1 90,000 CF2 125,000 CF3 175,000 CF4 200,000 CF5 190,000 CF6 â 9 165,000 CF10 145,000 If we have a required return of 14% for this project, what is the value of the project to the company? If we had to pay 700,000 for the project today, should we purchase the project?

2) When you retire you will initially require an annual income of 125,000 per year. You anticipate living for 25 years during retirement with an 8% investment return. How much do you need in your pension plans to cover this need? How much will you have to invest monthly over the next 35 years to acquire that amount of money, if you can earn 13% on your investments?

3) I want to purchase a house in Florida. The current value is $350,000. I would like to put 25% down and make the purchase in 5 years. Houses in the area are appreciating at 6% per year. The forecasted mortgage rate at the time of purchase is 7.5% for 30 years. Future cost of the house? Down payment? Mortgage amount? Monthly payments to get down payment, if I can invest at 15%? Monthly payment of the mortgage? Copy and Paste Special the first 6 months of the amortization table from the worksheet. What is the reduction in principal in month 1? (3) If you made an additional payment per year (1/12 more per month or made biweekly pmts), How much interest would you save?

FINE 2000 Chapter Notes - Chapter 8: Gm High Feature Engine, Net Present Value

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