An investor has the opportunity to invest in four new retail stores. The amount that can be invested in each store, along with the expected cash flow at the end of the first year, the growth rate of the concern, and the cost of capital is shown for each case. It is assumed each investment will operate in perpetuity after the initial investment. Which investment should the investor choose? ... O A. Initial investment: $100,000; Cash flow in year 1: $12,000; Growth Rate: 1.25%; Cost of Capital: 9% O B. Initial investment: $90,000; Cash flow in year 1: $10,000; Growth Rate: 1.50%; Cost of Capital: 9.2% O C. Initial investment: $80,000; Cash flow in year 1: $8000; Growth Rate: 1.75%; Cost of Capital: 8.1% O D. Initial investment: $60,000; Cash flow in year 1: $6000; Growth Rate: 2.50%; Cost of Capital: 7.2%

An investor has the opportunity to invest in four new retail stores. The amount that can be invested in each store, along with the expected cash flow at the end of the first year, the growth rate of the concern, and the cost of capital is shown for each case. It is assumed each investment will operate in perpetuity after the initial investment. Which investment should the investor choose? ... O A. Initial investment: $100,000; Cash flow in year 1: $12,000; Growth Rate: 1.25%; Cost of Capital: 9% O B. Initial investment: $90,000; Cash flow in year 1: $10,000; Growth Rate: 1.50%; Cost of Capital: 9.2% O C. Initial investment: $80,000; Cash flow in year 1: $8000; Growth Rate: 1.75%; Cost of Capital: 8.1% O D. Initial investment: $60,000; Cash flow in year 1: $6000; Growth Rate: 2.50%; Cost of Capital: 7.2%

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8TP: Fenton, Inc., has established a new strategic plan that calls for new capital investment. The...

See similar textbooks

Similar questions

Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
1. An investor has an opportunity to purchase any of the investments shown in the following table. Which purchase recommendations would you make, assuming that the investor can earn 10% on his investments? stream of cash number of years flows per year A 1 000 10 B 1 200 8. 900 11
An investor has the opportunity to invest in four new retail stores. The amount that can be invested in each store, along with the expected cash flow at the end of the first year, the growth rate of the concern, and the cost of capital is shown for each case. It is assumed each investment will operate in perpetuity after the initial investment. Which investment should the investor choose? O Initial investment: $90,000; Cash flow in year 1: $10,000; Growth Rate: 1.50%; Cost of Capital: 9.2% O Initial investment: $100,000; Cash flow in year 1: $12,000; Growth Rate: 1.25%; Cost of Capital: 9.3% O Initial investment: $80,000; Cash flow in year 1: $8000; Growth Rate: 1.75%; Cost of Capital: 8.2% O Initial investment: $60,000; Cash flow in year 1: $6000; Growth Rate: 2.50%; Cost of Capital: 7.1%
Use this information for Wyoming Corporation to answer the question that follow.The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for five years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income fromOperations Net CashFlow 1 $18,750 $93,750 2 18,750 93,750 3 18,750 93,750 4 18,750 93,750 5 18,750 93,750 The cash payback period for this investment is
Juliana is considering an investment proposal with the following cash flows: Initial investment-depreciable assets $55,000 Net cash inflows from operations (per year for 10 years) 11,000 Disinvestment 0 a. Determine the payback period. Round your answer to one decimal place; for example, enter 1.4 for 1.44 or 1.5 for 1.45. Answer years For parts b. and c., round your answers to three decimal places if applicable. For example, enter 0.084 for 0.0844 or 0.085 for 0.0845. b. Determine the accounting rate of return on initial investment. Answer c. Determine the accounting rate of return on average investment.
Use this information for Wyoming Corporation to answer the questions that follow. The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for five years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income fromOperations Net CashFlow 1 $18,750 $93,750 2 18,750 93,750 3 18,750 93,750 4 18,750 93,750 5 18,750 93,750 The present value index for this investment is
PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $150 atthe end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5, and$500 at the end of Year 6. If other investments of equal risk earn 11% annually, what is itspresent value? Its future value?
PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $350 at the end of Year 5, and $500 at the end of Year 6. a. If other investments of equal risk earn 8% annually, what is its present value? Round your answer to the nearest cent. b. If other investments of equal risk earn 8% annually, what is its future value? Round your answer to the nearest cent. A
Model each investment as an equation, and then arrange the investments in ascending order (from least to greatest value) based on their values after three years. Put from least to greatest in value after three years.$2,100 in a money market account that yields 12% per year$2,800 in a term CD that yields interest of 4% per year$2,520 in a savings account that yields interest of 5% per year
Park Company is considering an investment of $31,500 that provides net cash flows of $13,200 annually for four years. What is the investment's payback period? Numerator: 1 1 Payback Period Denominator: II II = II = Payback Period Payback period 0
Consider a proposal for a capital investment worth $6,000. Theannual revenues and expenses are $1850 and $500 respectively.Estimated market value of the investment is $1200 at the endof 10 years. Determine how sensitive the decision to invest interms of the capital investment. Draw the cash flow diagram.
An investment company is considering one of two possible business ventures. Project 1 gives a return of $250 000 in four years’ time, whereas Project2 gives a return of $350 000 in eight years’ time. Which project should thecompany invest in when the interest rate is 7% compounded annually?