Example 2 A new pharmaceutical plant will be built with an initial investment of $1.2 billion which will be an upfront payment. The construction of the plant will take one year after which there will be an expected yearly cashflow of $65 million for 20 years. The discount rate (the rate of return which could be expected if the money were invested elsewhere) is 5.9%. If you are the manager in charge of this project, will you move forward? Show all work.

Example 2 A new pharmaceutical plant will be built with an initial investment of $1.2 billion which will be an upfront payment. The construction of the plant will take one year after which there will be an expected yearly cashflow of $65 million for 20 years. The discount rate (the rate of return which could be expected if the money were invested elsewhere) is 5.9%. If you are the manager in charge of this project, will you move forward? Show all work.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

What refers to the interest rate at which the present worth of net cash flow of an investment equals to zero? O Return of investment Yield O Economic return Rate of return O Annual worth
1. Consider a wine dealer who has k bottles of wine. The dealer can sell them now (t = 0) or can store it for some time and then sell them later. The value of k bottles at t-th month is given by: Vt = ket The dealer can use the sales revenue as principal in a risk-free investment at rate r. (b) Write out the present value PV, of k bottles at t-th month.
Lewis’s management has been considering movingto a new downtown location, and they are concerned that these plans may come to fruition priorto the equipment lease’s expiration. If the moveoccurs then Lewis would buy or lease an entirelynew set of equipment, so management wouldlike to include a cancellation clause in the leasecontract. What effect would such a clause haveon the riskiness of the lease from Lewis’s standpoint? From the lessor’s standpoint? If you werethe lessor, would you insist on changing any ofthe other lease terms if a cancellation clause wereadded? Should the cancellation clause containprovisions similar to call premiums or any restrictive covenants and/or penalties of the type contained in bond indentures? Explain your answer.
A company invests $6,250 at the beginning ofa seven-year project. At the end of every year forthe first five years, the project generates $1,550. Atthe end of the sixth year, the project generates nomoney. At the end of the seventh year, the project isterminated. How much must the project generate atthe end of the seventh year to realize 14% return onthe initial investment?
You are the manager of the Mighty Fine mutual fund. The following table reflects the activity of the fund during the last quarter. The fund started the quarter on January 1 with a balance of $100 million. Mighty Fine Mutual Pund Monthly Data (measured at end of month) February -4.3 6.20 March January 5.5 Net inflows ($ million) HPR () -4.30 1.80 Required: a. Calculate the quarterly arithmetic average return on the fund. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Arithmetic average 1.23 % b. Calculate the quarterly geometric (time-weighted) average return on the fund. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Geometric average 1.14 % c. Calculate the quarterly dollar-weighted average return on the fund. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Dollar-weighted average return
1- In year 12 Adam earns $1450 and saves $550. In year 21 Adam gets a $4550 raise so that he earns a total of $6000. Out of that $6000, he saves $650. What is Adam's MPC out of his $4550 raise?
An annuity is set up that will pay $1,700 per year for ten years. What is the present value (PV) of this annuity given that the discount rate is 6%? OA. $12,512 OB. $7,507 OC. $17,517 OD. $15,014 4
What is the rate of return when 12 shares of Stock A, purchased for $22/share, are sold for $465? The commission on the sale is $9. 4 F4 Copyright © 2003-2022 International Academy of Science. All Rights Reserved. F5 Rate of Return Enter the appropriate value into the formula to calculate the rate of return. A F6 5 RTY 6 & Total Cost = $273 Profit= $192 [?] Rate of Return = F7 7 * = F8 8 profit or loss total cost DELL F9 9. prtsc F10 home F11 Enter end F12 +11. Insert
b) A stock you are evaluating just paid an annual dividend of £2.50. Dividends have grown at a constant rate of 1.5% over the last 15 years and you expect this to continue. i. If the required rate of return on the stock is 12%, what is the fair present value? If the required rate of return on the stock is 15%, what should the fair value be four years from today? ii.
Question 12 Not yet answered Pointa eut of 1 F Flag question Suppose you purchase a bond with a coupon of $50 for $1,010. You sell it one year later for $900. What rate of return did you earn? Select one: OA 10.89% O B. 5.94% OC - 10.89% O D. 5.94%
19:14 O E N{ 57% A project requiring an initial investment of $10 000 is guaranteed to produce a return of $13 000 in 5 years. 2. Use NPV method to determine whether this investment is worthwhile if the market rate is 5% compounded annually. ing anial produceatum of o determine wete II
Jacob manages a cloth manufacturing firm. He is deciding whether or not to invest In new machinery, The machinery costs $45,000 today and is expected to Increase cash lows in the first year by $25,000 and in the second year by $30,000. The firm's accrued fixed costs are $2800. If the interest rate (cost of capital) is 15% then whal is the net present value of the investment? 26.09 O 1840.09 2826.09 -576.56