Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental...
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Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property, He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments, The anticipated annual cash inflows from each are as follows: Windy Acres Yearly Aftertax Cash Inflow 30,000 35,000 50,000 65,000 78,000 Hillerest Apartnents Year ly Aftertax Cash Inflow 35,000 40,000 50,000 Probability Probability 0.2 0.2 0.4 0.2 0.2 0.2 0.2 60,000 0.2 e.2 Mr. Backster is likely to hold the apartment complex of his choice for about 25 years and will use this period for decision-making purposes. Either apartment can be purchased for $175,000. Mr. Backster uses a risk-adjusted discount rate approach when evaluating investments. His scale is related to the coefficient of variation (for other types of investments, he also considers other measures) Coefficient of Verlation Discount Rate e-0.35 0.35-0.40 7% 12 (cost of capital) 0.40-e.50 15 Over 0.50 not considered a. Compute the risk-adjusted net present value for Windy Acres and Hillcrest Apartments. (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answers to nearest whole dollar.) Net present value Windy Acres Hillcrest Apartments -2950 Mr. John Backster, a retired executive, desires to invest a portion of his assets in rental property, He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments, The anticipated annual cash inflows from each are as follows: Windy Acres Yearly Aftertax Cash Inflow 30,000 35,000 50,000 65,000 78,000 Hillerest Apartnents Year ly Aftertax Cash Inflow 35,000 40,000 50,000 Probability Probability 0.2 0.2 0.4 0.2 0.2 0.2 0.2 60,000 0.2 e.2 Mr. Backster is likely to hold the apartment complex of his choice for about 25 years and will use this period for decision-making purposes. Either apartment can be purchased for $175,000. Mr. Backster uses a risk-adjusted discount rate approach when evaluating investments. His scale is related to the coefficient of variation (for other types of investments, he also considers other measures) Coefficient of Verlation Discount Rate e-0.35 0.35-0.40 7% 12 (cost of capital) 0.40-e.50 15 Over 0.50 not considered a. Compute the risk-adjusted net present value for Windy Acres and Hillcrest Apartments. (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answers to nearest whole dollar.) Net present value Windy Acres Hillcrest Apartments -2950
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Expected cash flows for Windy Acres023000002350000250000026500002700... 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:
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