FIN MOD6 DIS

1. Basic NPV methods tell us that the value of a project today is NPV0.  Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1.  Why then do we see some firms choosing to defer taking on a project.  Be complete and thorough in your answer. 2. Briefly describe the agency relationship that exists between the shareholders and the managers of the firm and how it can result in what is referred to as the agency conflict?

Man.1

Suppose that your organization is deciding which of four projects to bid on, as summarized in the following table. Assume that all up-front investments are not recovered, so they are shown as negative profits. Draw a diagram and calculate the EMV for each project. Write a few paragraphs explaining which projects you would bid on. Be sure to use the EMV information and your personal risk tolerance to justify your answer.

You are the investment manager of an appliance company. The industry is currently in the expansion face and the CEO would like to capture as much of the market share as possible. You asked your analysts to submit project proposals as summarized below. Project Discount Rate Investment Annual Cash Flow Project Life (Years) 10 3M 1M 5 12 4M 1M 8 8 5M 2M 4 8 3M 1.5M 3 12 3M 1M 6 Which projects should the manager choose? If you were given unlimited capital, which projects should be implemented? ABCDE

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What Suppose your organization is deciding which of four projects to bid on. Information on each is in the table below. Assume that all up-front investments are not recovered, so they are shown as negative profits. Draw a diagram and calculate the EMV for each project. Write a few paragraphs explaining which projects you would bid on. Be sure to use the EMV information and your personal risk tolerance to justify your answer

Suppose an investor is concerned about a business choice in which there are three projects, the probability and returns are given below. Probability Return   0.4 $100   0.4 40   0.2 -30     The expected value of the uncertain investment is $ ----------- (round off to the nearest dollar

[EXCEL] Payback: Refer to Problem 5. What are the payback periods for production systems 1 and 2? If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? please use excel. Problem 5 info: 5. [EXCEL] Net present value: Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 9 percent discount rate for production system projects, in which system should the firm invest?   Year    System 1         System 2 0          −$15,000        −$45,000 1          15,000            32,000 2          15,000            32,000 3          15,000            32,000

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Compute the Profitability Index (PI)  for each project?   Project A Project B Profitability Index (PI)      5- In light of your answers above, suppose that these two projects might be mutually exclusive or independent. According to these two assumptions, fill in the blanks in the table below with the suitable answer:   Points Investment Criteria If A and B are mutually exclusive, then I would select If A and B are independent, then I would select   PBP       NPV       IRR       PI

Question 3 A firm is looking to evaluate the income coming from a project. The project has alowest possible income of $1,036.31, a likely income of $2,113.29 and a maximum income of $2,904.68. What is a the risk mitigated income that a firm should use their analysis? Enter your answer below (no $ sign), and show your work in your drobox submission. Your Answer:

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1. The president of the Martin Company is considering two alternative invest- ments, X and Y. If each investment is carried out, there are four possible outcomes. The present value of net profit and probability of each outcome follow: Investment X Investment Y Net Present Net Present Outcome Value Probability Outcome Value $12 million Probability 0.1 $20 million 0.2 A 8 million 10 million 2 0.3 B 9 million 0.3 3 0.4 6 million 0.1 3 million 0.1 D 11 million 0.5 a. What are the expected present value, standard deviation, and coefficient of variation of investment X? b. What are the expected present value, standard deviation, and coefficient of variation of investment Y? c. Which investment is riskier? d. The president of the Martin Company has the utility function

Basic NPV methods tell us that the value of a project today is NPV0. Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1.  Why then do we see some firms choosing to defer taking on a project.  Be complete and thorough in your answer.

Q24

The manager of a small firm wants to know which among the three different projects should the company enter into. Details of the three projects are as follows:   JOJO GINA MARIA LORINDA KANOR Initial investment P 120,000 P 125,000 P 180,000 P160,000 P35,000 Net present value 25,000 24,000 45,000 35,000 10,000 Internal rate of return 10% 15% 12% 8% 9% Profitability index 1.21 1.19 1.25 1.22 1.29 If the management has a budget of P500,000 only, which projects would be undertaken? a. Jojo, Gina, Lorinda, and Kanor b. Gina, Maria, Lorinda, and Kanor c. Jojo, Maria, Lorinda, and Kanor d. Jojo, Gina, Maria, and Kanor

The Michner corporation is trying is trying to choose between the following 2 mutually exclusive design project:   Cash Flow 1 Cash Flow 2 Year 0: -82000 -21700 Year 1: 37600 11200 Year 2: 37600 11200 Year 3: 37600 11200   If the required return is 10% and the company applies the profitability index decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take?  why are  a & b are different

Making the accept or reject decision Hungry Whale Electronics's decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should project Alpha. Which of the following statements best explains what it means when a project has an NPV of $0? O When a project has an NPV of $0, the project is earning a rate of return less than the project's weighted average cost of capital. It's OK to accept the project, as long as the project's profit is positive. O When a project has an NPV of $0, the project is earning a rate of return equal to the project's weighted average cost of capital. It's OK to accept a project with an NPV of $0, because the project is earning the required minimum rate of return. O When a project has an NPV of $0, the project is earning a profit of $0. A firm should reject any project with an NPV of $0, because the project is not profitable.

3. I need help with multiple choice finance home work question Which of the following statements is incorrect? If a firm's target average accounting return is less than that calculated for a given project then the project should be accepted.   If the NPV of a project is positive, it should be accepted.   If a project has a payback which is faster than the company requires the project should be accepted.   If the cost of capital is greater than the IRR, the project should be accepted.   If a project has a profitability index greater than one the project should be accepted.

4. Investment timing options Companies often need to choose between making an investment now or waiting until the company can gather more relevant information about the potential project. This opportunity to wait before making the decision is called the investment timing option. Consider the case: Tolbotics Inc. is considering a three-year project that will require an initial investment of $44,000. If market demand is strong, Tolbotics Inc. thinks that the project will generate cash flows of $29,000 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $2,000 per year. The company thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak. If the company uses a project cost of capital of 12%, what will be the expected net present value (NPV) of this project? (Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.) -$7,111 O-$6,433 O-$7,788…

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How I resolve this problems please give me the detail A firm has the following investment alternatives: Year                A                         B                            C 1                     $400                   $---                      $---- 2                       400                   400                    ---- 3                       400                   800                   ---- 4                      400                   800                    1,800   Each investment cost  of capital is 10 percent a. What is each investment's internal rate of return? b. Should the firm make any of theses investment? C. What is each investemtn's net present value? d. Should the firm make any of these investment

5. NPV profiles An NPV profile plots a project's NPV at various costs of capital, labeled "A" and "B" in the graph. A project's NPV profile is shown as follows. Identify the range of costs (ranges labeled "A" and "B") of capital that a firm would use to accept and reject this project. A B NPV (Dollars) 400 300 200 100 0 -100 -200 A 0 2 4 6 8 10 10 12 14 16 18 20 COST OF CAPITAL (Percent) True B True or False: The NPV and IRR methods can lead to conflicting decisions for mutually exclusive projects. False

4. Investment timing options Companies often need to choose between making an investment now or waiting until the company can gather more relevant information about the potential project. This opportunity to wait before making the decision is called the investment timing option. Consider the case: General Forge and Foundry Co. is considering a three-year project that will require an initial investment of $42,500. If market demand is strong, General Forge and Foundry Co. thinks that the project will generate cash flows of $28,000 per year. However, if market demand is weak, the company believes that the project will generate cash flows of only $2,000 per year. The company thinks that there is a 50% chance that demand will be strong and a 50% chance that demand will be weak.   If the company uses a project cost of capital of 14%, what will be the expected net present value (NPV) of this project? (Note: Do not round intermediate calculations and round your answer to the…

Alt 3. Both companies are considering an investment in Project One, Project Two, and Project Three. All three projects carry an average amount of risk for each company. Both companies use Payback, NPV and IRR to make investment decisions. The cash flows for both projects are shown below. a. Based on NPV, What projects would Apt be likely to invest in? b. Based on IRR, what projects woutd Heart be tikety to invest in? c. Which project has the fastest payback? Why might that be important to the investment decision? d. If money had no time value, which project would be the best decision? Project One: $10 million initial investment and $2million of free cash flow at the end of each year for 15 years. Project Two: $5 million initial investment. Free cash flows for 5 years : Yr. 1 = $3 million, Yr. 2 = $1.5 million, Yrs. 3-5 = 0.5 million Project Three: Initial investment of $20 million. One Free Cash flow of $40 million in 8 years. No other Free Cash Flows.

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5. NPV profiles An NPV profile plots a project's NPV at various costs of capital, labeled "A" and "B" in the graph. A project's NPV profile is shown as follows. Identify the range of costs (ranges labeled "A" and "B") of capital that a firm would use to accept and reject this project. A B NPV (Dollars) 400 300 200 100 0 -100 -200 0 2 A B 4 6 8 10 12 14 16 18 20 COST OF CAPITAL (Percent) The point at which the NPV profile intersects the horizontal axis represents the

1.What is the project’s net present value? 2. What is the project’s internal rate of return to the nearest whole percent? 3. What is the project’s simple rate of return? 4-a. Would the company want Casey to pursue this investment opportunity? 4-b. Would Casey be inclined to pursue this investment opportunity?