A Discussion On Net Present Value and Internal Rate of Return

Julie Kowalis, an investment analyst, wants to know if her investments during the past four years have earned at least a 12% return. Four years ago, she had the following investments:

1. She purchased a small building for $50,000 and rented space in it. She received rental income of $8,000 for each of the four years and then sold the building this year for $55,000.
2. She purchased a small refreshment stand near the city park for $25,000. Annual income from the stand was $5,000 for each of the four years. She sold the stand for $20,000 this year.
3. She purchased an antique car for $5,000 four years ago. She sold it this year to a collector for $7,000.

Required:
1. Using the net present value method, determine whether or not each investment earned at least 12%.
2. Did the investments as a whole earn at least 12%? Explain.

Solution Preview

1. Using the net present value method, determine whether or not each investment earned at
least 12%.

Find NPV by finding the present value of each cash flow, including both inflows and outflows, discounted at the project's cost of capital.
We will consider the payment and additional expenses as cash outflow while the cash receipt and saving will be regarded as cash inflow.

NPV = sum of CFt where CF is the cash flow
(1 + k)t k is the ...

Solution Summary

This solution is comprised of a detailed explanation and calculation to answer Julie Kowalis's return on investment.

Consider a project with the following expected cash flows:
Year Cash flow
0 - $400,000
1 $100,000
2 $120,000
3 $850,000
If the discount rate is 0%, what is the project's netpresentvalue?
If the discount

Company want to buy a machine for 66,000. The annual cash flow have the following projections
Year Cash flow
1 21,000
2 29,000
3 36,000
4 16,000
5 8,000
If the cost of capital is 10 percent what is the netpresentvalue?
What is the internalrate of return?

Teddy Bear Planet, Inc. has a project with the following cash flows:
Year Cash Flows ($$)
0 -8,000
1 4,000
2 3,000
3 2,000
A). Compute the internalrate of return
B). Suppose th

John is considering two capital expenditure projects; however, he has only enough money to do one project. The cash flows follow and the discount rate is 12%.
Project A Project B
Initial cost $(50,000) $(100,000)
Year 1 30,000

Explain the NetPresentValue (NPR) concept. What values must the NPR take on for the project to be acceptable at the promise of a return greater than the required rate of return? Contrast this method to InternalRate of Return.

Please see attached file for further detail.
Question 2 - NetPresentValue
You have just paid $20 million in the secondary market for the winning Powerball lottery ticket. The prize is $2 million at the end of each year for the next 25 years. If your required rate of return is 8 percent, what is the netpresentvalue (N

Please help with the following problem.
Briefly describe the following three key valuation methodologies that companies use - NetPresentValue (NPV), InternalRate of Return (IRR), and Modified InternalRate of Return (MIRR).
Please site any sources and provide references.

If a project has an up-front cost of $100,000. The project WACC is 12% and NPV is $10,000. which of the following statement is most correct?
A. the project should be rejected since its return is less than the WACC
B. The project's IRR is greater than 12%
C. The project MIRR is less than 12%
D. all the above answers ar

The Danforth Tire Company is considering the purchase of a new machine that would increase the speed of manufacturing and save money. The net cost of this machine is $66,000. The annual cash flows have the following projections.
Year Cash Flow
1. . . . . . . . . $21,000
2. . . . . . . . . 29,000
3. . . . . . . . . 36,000
4.

Nucore Company is thinking of purchasing a new candy wrapping machine at a cost of $370,000. The machine should save the company approximately $70,000 in operating costs per year over its estimated useful life of 10 years. the salvage value at the end of the 10 years is expected to be $15,000.
1. What is the machine's payback