FIN MOD6 DIS
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FIN MOD6 DIS
As the
financial manager
choosing between two projects
can be difficult. It is my responsibility
to increase the value of the firm. I must
take several factors into account, such as the
Net Present Value (NPV), Internal Rate of Return (IRR), Payback period, and the initial investment.
Let's examine Project Alpha and Project Beta
in greater detail and choose the best project to invest in
Project Alpha has an NPV of $35,270 and an IRR of 10.4%. Project Beta has a lower NPV of $1,780 but a higher IRR of 12.2%. Project Beta also has a shorter payback period of 2 years compared to Project Alpha's 6 years. Project Alpha requires a higher initial investment of $65,000 compared to Project Beta's $32,000.
The projects are mutually exclusive, meaning the financial manager can only choose one, and I believe the best choice depends on the company's priorities. I do not think there is a clear best option, but I would choose Project Alpha. Although Project Beta provides a larger IRR and faster
payback, it falls short in terms of NPV, an important metric for creating long-term value. With a greater NPV, Project Alpha is expected to provide a bigger contribution to the company's value during its entire life. “
If projects are mutually exclusive, the project with the largest NPV is undertaken, as long as it is more than $0” (Zutter & Smart, 2021). However, there are some circumstances in which Project Beta may be selected. Project Beta may
be the best option if the company has limited resources and prefers short-term cash flow. Also, Project Beta provides a quicker return on investment because of its quicker payback period and higher IRR. Project Alpha's larger NPV makes it the ideal choice for maximizing the company's long-term worth. Project Beta might be considered when short-term profits or risk reduction are prioritized.
Hello Danelle, It is difficult to disregard Project Beta's tempting payback period and the higher Internal Rate of Return (IRR) into account when comparing Project Alpha and Project Beta. However, due to its significantly greater NPV, Project Alpha, in my opinion, is the better option.
We need to consider the bigger picture. While it may take longer to recoup the initial investment compared to Project Beta, the financial outcome will likely be better in the long term.
Net Present Value (NPV) is an important metric that considers the time value of money while discounting cash flows over the course of the project to their present value. The NPV of Project Alpha here vastly outweighs that of Project Beta. This suggests that over time, Project Alpha will
add more to the company's overall value. “
If projects are mutually exclusive, the project with the largest NPV is undertaken, as long as it is more than $0” (Zutter & Smart, 2021).
Despite the alluring factors of Project Beta like the shorter payback period and the better IRR, I firmly believe that Project Alpha is the better project to invest in. References
Zutter, C., & Smart, S. (2021). Principles of managerial finance
(16th ed.). Pearson.
________________________________________________________________
I agree with you Jameeka that Project Alpha seems to be the better choice based on the net present value (NPV). The NPV for Project Alpha is $35,000, which is significantly higher compared to the NPV of Project Beta, which is $1,780.
Additionally, the internal rate of return (IRR) for Project Alpha is 10.4% over a period of 6 years, indicating a favorable return on the initial investment. This suggests that Project Alpha has
the potential for long-term profitability.
On the other hand, Project Beta has a higher IRR of 12.2% over a shorter period of 2 years. This indicates strong project margins and a quicker return on investment.
Given these factors, Project Alpha seems to be a superior option if the goal is to build a long-
term investment without a rigid time constraint for return because of its greater NPV and positive
IRR.
Good post Jameeka, have a great day.
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Related Questions
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?
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Man.1
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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.
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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
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Please need help with this financial accounting question not use ai
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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
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[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
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Homework i
A company is considering three alternative investment projects with different net cash flows. The present value of net cash flows is
calculated using Excel and the results follow.
Potential Projects.
Present value of net cash flows (excluding initial investment)
Initial investment.
Complete this question by entering your answers in the tabs below.
Required A
a. Compute the net present value of each project.
b. If the company accepts all positive net present value projects, which of these will it accept?
c. If the company can choose only one project, which will it choose on the basis of net present value?
FI
Compute the net present value of each project.
Potential Projects
Project A
Present value of net cash flows
Initial investment
Net present value
2
Required B
W
F2
#
Required C
3
APR
11
80
F3
$
4
m tv
6
Project A
$ 9,972
(10,000)
2 of 8
c
F6
#
&
7
Project B
$ 10,697
(10,000)
F7
Next >
Y U
il A
8
Project C
$ 10,653
(10,000)
FB
DD
(
F9
9
FU
O
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8. NPV profiles
An NPV profile plots a project's NPV at various costs of capital. An example NPV profile is shown below:
Identify the range of costs of capital that a firm would use to accept and reject this project, and answer the questions that follow.
NPV (Dollars)
600
500
400
300
200
100
0 ←
-100
-200
-300
A
2
4 6
8 10 12 14 16
DISCOUNT (REQUIRED) RATE (Percent)
The project represented by triangle A should be
B
18 20
This NPV profile demonstrates that as the cost of capital increases, the project's NPV
?
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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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Suppose that you could invest in the following projects but have only $29,700 to invest. How would you make your decision and in
which projects would you invest?
Project Cost
A
$7,850
B
C
D
11,060
9,200
6,540
NPV
$3,200
6,460
4,150
3,090
You should invest in project(s)
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i need the answer quickly
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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
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Suppose that you could invest in the following projects but have only $29,670 to invest. How would you make your decision and in
which projects would you invest?
Project
Cost
NPV
A
$8,260
$4,300
BCD
10,850
6,470
9,070
4,830
7,170
3,940
You should invest in project(s)
E
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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.
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Q24
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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
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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.
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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.
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Problem 6.a: A manufacturing firm is considering the mutually exclusive alternatives
given in the table below. Determine the IRR on incremental investment (IRR of the
difference). do not use % sign in your answer
n
0
1
2
Net Cash Flow
Project A1
- $4,000
2,600
2,800
Project A2
- $5,000
3,600
3,200
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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
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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
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
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QUESTION 15
The internal rate of return is defined as the:
rate at which the net present value of a project is equal zero.
rate of return a project will generate if the project in financed solely with internal funds.
O rate that equates the net cash inflows of a project to zero.
maximum rate of return a firm expects to earn on a project.
rate that causes the profitability index for a project to equal zero.
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Related Questions
- 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?arrow_forwardMan.1arrow_forwardSuppose 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.arrow_forward
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