1. Calculate the Return on Investment (5 pt): a. Calculate the Return on Investment of an...

 

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1. Calculate the Return on Investment (5 pt): a. Calculate the Return on Investment of an investment of $5000 that is sold one year later for $5500. b. Calculate the Return on Investment of an investment of $5000 that is sold two years later for $5800. c. Which of the two investments is better? Explain your answer. 2. A small company is considering installing an upgrade that will save in power costs adding to the profit. The equipment upgrade is expected to cost $190,000. The owners expect this equipment will only be required for four years after which it will be removed and scrapped (another process change will make this unnecessary). The anticipated profit in the first year is $60,000 and will decrease by $3,000 per year for the next three. The interest rate for this project is 5% (9pt). a. Should the company consider this project? Why or why not? b. If the cost of $15,000 to remove the upgrade equipment is added to the final year does this change the decision to install it? Why or why not? c. Assume the upgrade equipment can be sold for $30,000 at the end of the four years to another company but there will be maintenance required in year three costing $20,000, is this now a viable project? Why or why not? Use Net Present Value and show your calculations. 3. Calculate Future Value (4pt): a. What is the future value of a 5 year investment of $1500 with a simple interest rate of 6%? b. What is the future value of a 5 year investment of $1500 with a compound interest rate of 6%? 4. Calculate the Weighted Average Cost of Capital for the following scenario. A company is investigating a project that will be funded 30% by debt and 70% by equity (7 pts). Currently the company has the following debt: Line of Credit $750,000 at 3.25% Long Term Loan $825,000 at 4.2% Short Term Loan $215,000 at 4.5% Bonds $325,000 at 3.5% The company's corporate tax rate is 23%. The risk-free interest rate is 2.5%. The market rate of return is 8%. The company's stock volatility is considered low so beta is given the value of 0.75 1. Calculate the Return on Investment (5 pt): a. Calculate the Return on Investment of an investment of $5000 that is sold one year later for $5500. b. Calculate the Return on Investment of an investment of $5000 that is sold two years later for $5800. c. Which of the two investments is better? Explain your answer. 2. A small company is considering installing an upgrade that will save in power costs adding to the profit. The equipment upgrade is expected to cost $190,000. The owners expect this equipment will only be required for four years after which it will be removed and scrapped (another process change will make this unnecessary). The anticipated profit in the first year is $60,000 and will decrease by $3,000 per year for the next three. The interest rate for this project is 5% (9pt). a. Should the company consider this project? Why or why not? b. If the cost of $15,000 to remove the upgrade equipment is added to the final year does this change the decision to install it? Why or why not? c. Assume the upgrade equipment can be sold for $30,000 at the end of the four years to another company but there will be maintenance required in year three costing $20,000, is this now a viable project? Why or why not? Use Net Present Value and show your calculations. 3. Calculate Future Value (4pt): a. What is the future value of a 5 year investment of $1500 with a simple interest rate of 6%? b. What is the future value of a 5 year investment of $1500 with a compound interest rate of 6%? 4. Calculate the Weighted Average Cost of Capital for the following scenario. A company is investigating a project that will be funded 30% by debt and 70% by equity (7 pts). Currently the company has the following debt: Line of Credit $750,000 at 3.25% Long Term Loan $825,000 at 4.2% Short Term Loan $215,000 at 4.5% Bonds $325,000 at 3.5% The company's corporate tax rate is 23%. The risk-free interest rate is 2.5%. The market rate of return is 8%. The company's stock volatility is considered low so beta is given the value of 0.75

Answer rating: 100% (QA)

Return on Investment ROI a ROI Final Value Initial Investment Initial Investment 100 ROI 5500 5000 5000 100 ROI 500 5000 100 ROI 10 b ROI 5800 5000 50... View the full answer