Montreal Comedy Clubs Limited – It has $500,000 investable fun to invest in either “BIG” or “Singa”. The firm’s cost of capital is 12% As the table below indicates, MCC should consider making the Singa investment because this will allow MCC to have more money after eighteen months. However, your manager directs you to calculate the present value of cash inflow of BIG and Singa respectively and compare on present value basis. The cost of capital is 12% per annum. Explain why on present value terms BIG may or may not be higher than Singa. BIG Investment Singa Investment Semi-annual Periods Semi-annual Dividend Income 7% Future Value Factor @ 12%/2 =6% Future Value Quarterly Periods Quarterly Dividend Future Value Factor @ 12%/4 = 3% Future Value 1 $35,000.00 1.1236 $39,326.00 1 $12,500.00 1.1593 $14,491.25 2 35,000.00 1.0600 37,100.00 2 12,500.00 1.1255 14,068.75 3 35,000.00 1.0000 35,000.00 3 12,500.00 1.0927 13,658.75 - 4 12,500.00 1.0609 13,261.25 - 5 12,500.00 1.0300 12,875.00 6 12,500.00 1.0000 12,500.00 Principal 500,000.00 1.0000 500,000.00 531,250.00 1.0000 531,250.00 Future value $611,426.00 $612,105.00
Montreal Comedy Clubs Limited – It has $500,000 investable fun to invest in either “BIG” or “Singa”. The firm’s cost of capital is 12% As the table below indicates, MCC should consider making the Singa investment because this will allow MCC to have more money after eighteen months. However, your manager directs you to calculate the present value of cash inflow of BIG and Singa respectively and compare on present value basis. The cost of capital is 12% per annum. Explain why on present value terms BIG may or may not be higher than Singa. BIG Investment Singa Investment Semi-annual Periods Semi-annual Dividend Income 7% Future Value Factor @ 12%/2 =6% Future Value Quarterly Periods Quarterly Dividend Future Value Factor @ 12%/4 = 3% Future Value 1 $35,000.00 1.1236 $39,326.00 1 $12,500.00 1.1593 $14,491.25 2 35,000.00 1.0600 37,100.00 2 12,500.00 1.1255 14,068.75 3 35,000.00 1.0000 35,000.00 3 12,500.00 1.0927 13,658.75 - 4 12,500.00 1.0609 13,261.25 - 5 12,500.00 1.0300 12,875.00 6 12,500.00 1.0000 12,500.00 Principal 500,000.00 1.0000 500,000.00 531,250.00 1.0000 531,250.00 Future value $611,426.00 $612,105.00
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...
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Montreal Comedy Clubs Limited – It has $500,000 investable fun to invest in either “BIG” or “Singa”. The firm’s cost of capital is 12%
As the table below indicates, MCC should consider making the Singa investment because this will allow MCC to have more money after eighteen months. However, your manager directs you to calculate the present value of cash inflow of BIG and Singa respectively and compare on present value basis. The cost of capital is 12% per annum.
Explain why on present value terms BIG may or may not be higher than Singa.
BIG Investment
Singa Investment
Semi-annual
Periods
Semi-annual
Dividend
Income
7%
Future Value
Factor @ 12%/2
=6%
Future
Value
Quarterly
Periods
Quarterly
Dividend
Future Value
Factor @ 12%/4
= 3%
Future
Value
1
$35,000.00
1.1236
$39,326.00
1
$12,500.00
1.1593
$14,491.25
2
35,000.00
1.0600
37,100.00
2
12,500.00
1.1255
14,068.75
3
35,000.00
1.0000
35,000.00
3
12,500.00
1.0927
13,658.75
-
4
12,500.00
1.0609
13,261.25
-
5
12,500.00
1.0300
12,875.00
6
12,500.00
1.0000
12,500.00
Principal
500,000.00
1.0000
500,000.00
531,250.00
1.0000
531,250.00
Future value
$611,426.00
$612,105.00
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