Post by: vicky on Jun 7, 2019
Question 1
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?Question 2
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%?Post by: jazzlynnnnn on Jun 7, 2019
Answer 1
Outlays:PVOUT = 127 000 + 127 000
- 130 000
= 127 000 + 113 840.09 - 43 536.98= $197 303
Inflows:
PVIN = 85000
(1.1156)-2 + 70000 (1.1156)-6= 209 379.10 + 111 321.34 = $320 700
NPV = 320 700 - 197 303 = $123 397
Since NPV > 0, the rate of return on the venture is greater than 11.56%. The venture should be undertaken.
Answer 2
Inflows: PMT = 60 000; P/Y = C/Y = 1; I/Y = 17%; n = 14(1) = 14PVIN = 60000
(1.17)-3 = $195 901Outlays: PMT = 50 000; n = 3(1)
PVOUT = 110 000 + 50000
= 110 000 + 110 479.2481 = $220 479NPV = 195 901 - 220 479 = -$24 578
The net present value of the project at 17% is -$24 578.
Post by: vicky on Jun 7, 2019
Post by: jazzlynnnnn on Jun 7, 2019