HomeworkLib
Question

Inflation and NPV a) Hewlett Packard is considering an investment project that requires an initial investment...

Inflation and NPV

a) Hewlett Packard is considering an investment project that requires an initial investment of $50 million. The investment will generate $15 million at the end of each year for 4 years if there is no inflation. A financial analyst determines that the project will have a nominal discount rate of %15. The analyst also forecasts an inflation rate 7%. What is the real rate?

b) Hewlett Packard is considering an investment project that requires an initial investment of $50 million. The investment will generate $15 million at the end of each year for 4 years if there is no inflation. A financial analyst determines that the project will have a nominal discount rate of 15%. The analyst also forecasts an inflation rate 7%. What is the net present value of the investment project?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

a.

Real Rate = Nominal Rate - Inflation Rate

Real Rate = 0.15 - 0.07

Real Rate = 8.00%

b.

Initial Investment = $50 million

NPV = -$7,175,325.56

0 0
Add a comment
Know the answer?
Add Answer to:
Inflation and NPV a) Hewlett Packard is considering an investment project that requires an initial investment...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Hewlett Packard is considering an investment project that requires an initial investment of $20 million. The...

    Hewlett Packard is considering an investment project that requires an initial investment of $20 million. The investment will generate $10 million at the end of each year for 3 years if there is no inflation. A financial analyst determines that the project will have a nominal discount rate of 17.35%. The analyst also forecasts an inflation rate of 7% (A) What is the Real Rate ____________9.67%_____________ (The answer is 9.67, I just could not figure out Part B) (B) What...

  • IBT Tech Inc is considering a new 3-year investment project that requires an initial fixed asset...

    IBT Tech Inc is considering a new 3-year investment project that requires an initial fixed asset investment of $4.49 million. The fixed asset will be depreciated straight-line to zero over its three-year life. The project is estimated to generate $2,950,000 in sales per year with additional costs of $952,000 per year. The tax rate is 30% and the required return (appropriate discount rate) is 16%. The fixed asset should have a market (or salvage) value of $595,000 at the end...

  • IBT Tech Inc is considering a new 3-year investment project that requires an initial fixed asset...

    IBT Tech Inc is considering a new 3-year investment project that requires an initial fixed asset investment of $4.49 million. The fixed asset will be depreciated straight-line to zero over its three-year life. The project is estimated to generate $3,010,000 in sales per year with additional costs of $905,000 per year. The tax rate is 30% and the required return (appropriate discount rate) is 16%. The fixed asset should have a market (or salvage) value of $595,000 at the end...

  • Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment...

    Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.43 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $281,289 at the end of the project. The project is estimated to generate $2,102,812 in annual sales, with costs of $805,313. The project requires an initial investment in net working capital of $361,924. If the tax rate is...

  • Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment...

    Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.41 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $213,186 at the end of the project. The project is estimated to generate $2,105,355 in annual sales, with costs of $883,025. The project requires an initial investment in net working capital of $377,259. If the tax rate is...

  • A firm is considering investing in a project that requires an initial investment of $200,000 and...

    A firm is considering investing in a project that requires an initial investment of $200,000 and is expected to produce cash inflows of $60,000, $80,000, and $100,000 in first, second, and third years. There will be no residual value. The firm applies a discount rate of 10%. Discount factors for Year 1, 2 and 3 are 0.909, 0.826, and 0.751 respectively. Required: i) Calculate the NPV of the project. ii) Explain the meaning of NPV and its advantages as an...

  • Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment...

    Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.55 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,030,000 in annual sales, with costs of $725,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset vwill have a market value of $285,000 at the end of the project. If the tax rate...

  • Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $...

    Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1,860,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,950,000 in annual sales, with costs of $1,060,000. The project requires an initial investment in net working capital of $150,000, and the fixed asset will have a market value of $175,000 at the end of...

  • Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment...

    Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,010,000 in annual sales, with costs of $705,000. The project requires an initial investment in net working capital of $230,000, and the fixed asset will have a market value of $295,000 at the end of the project. If the tax rate...

  • Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment...

    Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.8 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $453,600 after 3 years. The project requires an initial investment in net working capital of $648,000. The project is estimated to generate $5,184,000 in annual sales, with costs of $2,073,600. The tax rate is 24 percent and the required return on the project...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT