Videos: Investment Decisions
- You are considering investing in a business. The business will cost $60,000 and require another $10,000 in immediate renovations. The business is expected to return $20,000 per year for 4 years. The company requires a 10% rate of return.
(a) Calculate the payback for the business
(b) Calculate the NPV for the Business
(c) Calculate the Internal rate of return
Using The BAII Plus for Cash Flows
- You are considering investing in a business. The business is expected to cost $60,000 and require another $10,000 in immediate renovations. The business is expected to return $20,000 per year for 4 years and then $40,000 after the fifth year. The company requires a 10% rate of return.
(a) Calculate the payback for the business
(b) Calculate the NPV for the business
(c) Calculate the Internal rate of return
- A company is considering launching a new product. The initial start-up costs will be $100,000 and the product will provide returns of $40,000 in year 1, $40,000 in year 2 and $31,757.60 in the third year.
(a) Calculate the NPV using a MARR of 5%
(b) Calculate the NPV using a MARR of 7%
(c) Calculate the NPV using a MARR of 6%
(d) Calculate the IRR of the project.
- You are considering an investment in a gardening business. You estimate your start-up costs to be $160,301.96. You expect rent and electricity charges to be $15,000 per year payable at the beginning of the year for 7 years. You expect revenue to be $50,000 per year for 7 years at which time you will sell your equipment for $15,000. Your MARR is 12%.
(a) Calculate the NPV for the business – should you invest?
(b) What is the IRR?
(c) By switching to solar panels you can save some money on the start-up. How much per year would you need to save to make this a worthwhile investment?
(d) The makers of your equipment are offering a rebate at the end of the first year. How large would that rebate need to be in order for you to accept this investment?
(e) The salesperson says that you have underestimated the equipment’s salvage value. What salvage value would make this an acceptable investment?
