1) Joe\'s Hardware is adding a new product line that will require an investment

Question

1) Joe's Hardware is adding a new product line that will require an investment of $1,476,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $300,000 the first year, $290,000 the second year, and $240,000 each year thereafter for eight years. Assume the project has no residual value.

a. Compute the ROR for the investment (round answer to 2 decimal places)

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2) White, Co., is considering acquiring a manufacturing plant. The purchase price is $1,100,000. The owners believe the plant will generate net cash inflows of $314,000 annually. It will have to be replaced in seven years.

a. Use the payback method to determine whether White should purchase this plant. (round answer to 1 decimal place) The payback period for the plant is ____years.

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3) Assume you want to retire early at age 52. You plan to save using one of the following two strategies: (1) save $2700 a year in an IRA beginning when you are 27 and ending when you are 52 (25 years) or (2) wait until you are 37 to start saving and then save $4,500 per year for the next 15 years. Assume you will earn the historic stock market average of 10% per year.

a) How much out of pocket cash will you invest under the two options?

b) How much savings will you have accumulated at age 52 under the two options?

c) explain results

d) If you were to let the savings continue to grow for 10 more years (with no further out of pocket investments), what would the investments be worth when you are age 62?

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4) Your best friend just received a gift of $9000 from his favorite aunt. He wants to save the money to use as "starter" money after college. He can invest it (1) risk- free at 8%, (2) taking on moderate risk at 12% or (3) taking on high risk at 16%

Begin by computing the future value of the investment under the each of the three options. (round the investments worth to the nearest whole dollar)

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5) Janice wants to take the next six years off work to travel around the world. She estimates her annual cash needs at $33,000 (if she needs more, she will work odd jobs) . Janice believes she can invest her savings at 10% until she depletes her funds.

a)How much money does Janice need now to fund her travels? With the 10% interest rate, Janet needs: $______

b) After speaking with a number of banks, Janice learns she'll only be able to invest her funds at 4%. How much does she need now to fund her travels?

Explanation / Answer

Dear user please dont post multiple questions

Ans 1 Year Net Cash flow 12% Discounted Cash flow 11% Discounted Cash flow Discount Rate 11.54% Discounted Cash flow 0 -1476000 1 -1476000 -1476000 1 -1476000 1 300000 0.8929 267870 0.900901 270270.27 0.8965 268961.807 2 290000 0.7972 231188 0.811622 235370.51 0.8038 233097.018 3 240000 0.7118 170832 0.731191 175485.93 0.7206 172949.504 4 240000 0.6355 152520 0.658731 158095.43 0.6461 155056.037 5 240000 0.5674 136176 0.593451 142428.32 0.5792 139013.840 6 240000 0.5066 121584 0.534641 128313.80 0.5193 124631.379 7 240000 0.4523 108552 0.481658 115598.02 0.4656 111736.937 8 240000 0.4039 96936 0.433926 104142.36 0.4174 100176.561 9 240000 0.3606 86544 0.390925 93821.95 0.3742 89812.230 10 240000 0.322 77280 0.352184 84524.27 0.3355 80520.199 NPV -26518 32050.86 -44.49 Now IRR will be betwenn 11%and 12% but close to 12% as at 11% so Rate of return is 11.54% Ans

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