1. A two year project requires a $20,000 investment. In the first year it will generate...

 

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1. A two year project requires a $20,000 investment. In the first year it will generate $16,000 and $10,000 in the second year. a. Calculate the project Net Present Value if the discount rate is 15%? Try 25%? b. From the results in a, can you guess a possible range for IRR? c. What is the project IRR (you can use excel for this, however, if you consider: 1+IRR You can write the problem as a quadratic function and solve manually) For quadratic equation solution see Wikipedia 2. A project has a cost of $100,000. It has a life of 4 years. The project cost will be depreciated with equal weight (straight line) towards $20,00 value in the four years. Cash sales are expected to be $200,000 per year and 40% cost of goods sold and fixed cost (SG&A) of $30,000 in each of the 4 operating years (not in year '0').. The appropriate discount rate is 15% and the corporate tax rate is 20%. What is the project net present value? 3. A gadget production factory will require an initial investment of $120,000 (all numbers in thousands). It is expected to last five years. A three-year MACRS will be used for depreciation towards a $20,000 salvage value. Sales are expected to be $120,000 with 60% cost of goods sold. Assuming 18% discount rate and 20% tax rate: a. Should the firm accept the project? b. The project will require a working capital of $20,000 in the initial year and held throughout the project life. Evaluate the project net present value. *3 Year MACRS Year 1 2 3 4 Allowance 33 44 15 8 4. Suppose you are a money manager of a $10 million investment fund. The fund is invested in three assets with the following investments and betas: Investment Stock A B C Beta $3,000,000 1.80 2,000,000 0.75 4,000,000 1.20 The remainder is invested in T-bills (risk free asset) with 3% return. a. If the market expected rate of return is 9% what is the fund's expected rate of return? b. Using Funds A and B, create a portfolio (report the portfolio weights and $ investment out of $10 million) with a 0.92 beta. 1. A two year project requires a $20,000 investment. In the first year it will generate $16,000 and $10,000 in the second year. a. Calculate the project Net Present Value if the discount rate is 15%? Try 25%? b. From the results in a, can you guess a possible range for IRR? c. What is the project IRR (you can use excel for this, however, if you consider: 1+IRR You can write the problem as a quadratic function and solve manually) For quadratic equation solution see Wikipedia 2. A project has a cost of $100,000. It has a life of 4 years. The project cost will be depreciated with equal weight (straight line) towards $20,00 value in the four years. Cash sales are expected to be $200,000 per year and 40% cost of goods sold and fixed cost (SG&A) of $30,000 in each of the 4 operating years (not in year '0').. The appropriate discount rate is 15% and the corporate tax rate is 20%. What is the project net present value? 3. A gadget production factory will require an initial investment of $120,000 (all numbers in thousands). It is expected to last five years. A three-year MACRS will be used for depreciation towards a $20,000 salvage value. Sales are expected to be $120,000 with 60% cost of goods sold. Assuming 18% discount rate and 20% tax rate: a. Should the firm accept the project? b. The project will require a working capital of $20,000 in the initial year and held throughout the project life. Evaluate the project net present value. *3 Year MACRS Year 1 2 3 4 Allowance 33 44 15 8 4. Suppose you are a money manager of a $10 million investment fund. The fund is invested in three assets with the following investments and betas: Investment Stock A B C Beta $3,000,000 1.80 2,000,000 0.75 4,000,000 1.20 The remainder is invested in T-bills (risk free asset) with 3% return. a. If the market expected rate of return is 9% what is the fund's expected rate of return? b. Using Funds A and B, create a portfolio (report the portfolio weights and $ investment out of $10 million) with a 0.92 beta.

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1 Calculating Net Present Value NPV for the twoyear project a Given project cash flows Year 1 16000 Year 2 10000 Discount rate 15 NPV Year 1 Cash Flow 1 Discount Rate1 Year 2 Cash Flow 1 Discount Rate... View the full answer