ABC company is considering a project with an initial investment of $1500 followed by a cash...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
ABC company is considering a project with an initial investment of $1500 followed by a cash inflow of $500, $750, and $880 in the next three years. This project has a discount rate of 15%. The CFO is concerned about the high financing cost in the current market and expects the cost of capital may increase or decrease by 20% and asks you, the CFO's assistant, to conduct a sensitivity analysis of the project with regard to the discount rate change. What impact will the change in the discount rate be on the project's NPV? What will be the range of the NPV change? What is the break-even discount rate for the NPV of this project? ABC company is considering a project with an initial investment of $1500 followed by a cash inflow of $500, $750, and $880 in the next three years. This project has a discount rate of 15%. The CFO is concerned about the high financing cost in the current market and expects the cost of capital may increase or decrease by 20% and asks you, the CFO's assistant, to conduct a sensitivity analysis of the project with regard to the discount rate change. What impact will the change in the discount rate be on the project's NPV? What will be the range of the NPV change? What is the break-even discount rate for the NPV of this project?
Expert Answer:
Answer rating: 100% (QA)
To analyze the sensitivity of the projects net present value NPV to changes in the discount rate well calculate the NPV for different discount rate sc... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these finance questions
-
Colorado Company is considering a project with an initial investment of $599,500 that is expected to produce cash inflows of $128,000 for ten years. Colorado's required rate of return is 10%. What is...
-
ABC Company is considering a project with an initial investment of $600,000 and expected to generate a cash inflow of $100,000 per year for 5 years.The required rate of return is 14%. What is the NPV...
-
Tetryl Company Is considering a project with an initial Investment of $200,000 in new equipment that will yield annual net cash flows of $48,000 and will depreciate at $24,000 per year over its eight...
-
How might a shareholders agreement influence a companys financial report-ing objectives?
-
On August 17, the company declared cash dividends of $35,000. The dividends were paid on September 16. Make the journal entries necessary to record both events.
-
Repeat Prob. 824 for steam condensing at a rate of 0.60 kg/s. Data from problem 24 Cooling water available at 108C is used to condense steam at 30C in the condenser of a power plant at a rate of 0.15...
-
A university pumps its water from wells located on campus. The falling water table has caused pumping costs to increase, the quantity of water available to decrease, and the quality of water to...
-
Bus and subway ridership in Washington, D.C., during the summer months is believed to be heavily tied to the number of tourists visiting the city. During the past 12 years, the following data have...
-
How does a Cloud Data Management Platform differ from a Database Management System?
-
The Scottish firm of Cullen and MacNeil produces a single product and uses a standard costing system to help control costs. Manufacturing overhead is applied to production on the basis of standard...
-
Suppose that the free charge are present in a material of dielectric constant =10 & resistivity f = 101 2-m using ohm's law and the equation ay continuity for charge, the time required for the charge...
-
Find the area of the following figure. (Round the answer to one decimal place.) A = ft2 35ft 6.2 ft 6.2 ft
-
Explain why auditors today need to provide key audit matters in their audit report of the company.
-
What is the purpose of law in Jurisprudence? How many types of law are there in jurisprudence?
-
How do theories of social constructionism and discourse analysis explore the role of language, discourse, and symbolic representation in shaping social realities, including constructions of gender,...
-
Assume that you obtain a quote for a one-year forward rate on the Argentinian peso. Assume that Argentinas one-year interest rate is 50 percent, while the U.S. one-year interest rate is 10 percent....
-
Ms. Catherine Elizabeth makes frequent purchases of the common shares of Computers Inc. During 2018, she purchased 640 shares at $24 per share on January 30, and 330 shares at $21 per share on June...
-
Juanita owns a home in Richardson, TX. She purchases a Homeowners Policy (HO-3) from Farm State Ins. Co. The policy provides $100,000 in liability coverage (coverage E) and $5,000 in Med Pay coverage...
-
Barbara (from previous problem) is now 18 years old (five years have passed), and she wants to get married instead of going to school. Your parents have accumulated the necessary funds for her...
-
Trois-Rivieres Manufacturing has 10,000 bonds (face value of $1,000 each) with a 10 percent coupon maturing in 8 years. Its preferred (100,000 shares) have a face value of $25 and pay a 7.5 percent...
-
Why do you think the CAPM is or is not useful to the financial manager?
-
Refer to the revenue arrangement in P18-1. Instructions Consider the following information and respond to the requirements indicated. (a) In response to competitive pressures for the Internet access...
-
Presented below and on page 946 are three independent revenue arrangements for Colbert Company. Instructions Respond to the requirements related to each revenue arrangement. (a) Colbert sells 3-D...
-
Van Hatten Consolidated has three operating divisions: DeMent Publishing Division, Ankiel Securities Division, and Depp Advisory Division. Each division maintains its own accounting system. DeMent...
Study smarter with the SolutionInn App