27

A firm is considering two investment projects, Y and Z. These projects are NOT mutually exclusive. Assume the firm is not capital constrained. The initial costs and cashflows for these projects are: 0 1 2 3 Y -40,000 17,000 17,000 15,000 Z -28,000 12,000 12,000 20,000 Using a discount rate of 9% calculate the net present value for each project. What decision would you make based on your calculations? How would your decision change if the discount rate used for calculating the net present value is 15%? Calculate an approximate IRR for each project. Assume the hurdle rate is 9%. What decision would you make based on your calculations? Calculate the payback period for each project. The company looks to select investment projects paying back in 2 years. What decision would you make based on your calculations? Critically discuss Net Present Value (NPV), Internal Rate of Return (IRR) and payback period as criteria for investment appraisal.

All parts are under one question and therefore can be answered per your policy. 1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Hungry Whale Electronics is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,500,000. The project is expected to generate the following net cash flows:   Year Cash Flow Year 1 $300,000 Year 2 $500,000 Year 3 $425,000 Year 4 $400,000   A. Hungry Whale Electronics’s weighted average cost of capital is 9%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV?   -$767,383   -$1,192,383   $1,307,617   -$1,371,240     B. Making the accept or reject decision   Hungry Whale Electronics’s decision to…

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.  Time 0 1 2 3 4 5 6 Cash Flow -1,150 30 570 770 770 370 770 Use the NPV decision rule to evaluate this project; should it be accepted or rejected?   Multiple Choice A. $968.66, accept B. $2,118.66, accept C. $-495.13, reject D. $864.87, accept

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.   Time  0 1 2 3 4 5 6   Cash Flow -1,040 140 460 660 660 260 660 Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.  Time 0 1 2 3 4 5 6 Cash Flow -1,110 70 530 730 730 330 730   Use the payback decision rule to evaluate this project; should it be accepted or rejected?   Multiple Choice A. 1.10 years, accept B. 4.00 years, reject C. 2.70 years, reject D. 0 years, accept

Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Cash Flow Today ($ millions) Project A -6 B с 2 25 L Cash Flow in One Year ($ millions) 22 5 - 8 <

The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Hungry Whale Electronics is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $500,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $475,000 Year 3 $500,000 Year 4 $400,000   Hungry Whale Electronics’s weighted average cost of capital is 9%, and project Alpha has the same risk as the firm’s average project. Based on the cash flows, what is project Alpha’s net present value (NPV)? $344,489   $844,489   $1,319,489   $971,162     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.…

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:    Year Cash Flow 0 –$ 28,900   1   12,900   2   15,900   3   11,900     What is the NPV for the project if the required return is 11 percent?   At a required return of 11 percent, should the firm accept this project?   What is the NPV for the project if the required return is 25 percent?

1. Hardchoice Corp. is a firm considering prospective capital budgeting projects. Selected data on the projects follow: Image attached Consider the following statements. Select the one that is true. 1.   The NPV of project D will be much more sensitive to changes in the discount rate than will the NPV of project A. 2. If projects C and D are mutually exclusive, incremental analysis indicates that one should reject project C and accept project D. 3. It is possible for projects A and D to have the same NPV. 4. All of the above are true. 5.  None of the above is true.

1. Hardchoice Corp. is a firm considering prospective capital budgeting projects. Selected data on the projects follow: Image attached Consider the following statements. Select the one that is true. 1.   The NPV of project D will be much more sensitive to changes in the discount rate than will the NPV of project A. 2. If projects C and D are mutually exclusive, incremental analysis indicates that one should reject project C and accept project D. 3. It is possible for projects A and D to have the same NPV. 4. All of the above are true. 5.  None of the above is true. Pls show formula used. Final dollar answers should be rounded to two decimal places. Interest rate answers should be rounded to 6 decimal places if expressed as a decimal or 4 decimal places if expressed as a percent. Use timeline if necessary. No excel .Thanks!

The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,000,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $400,000 Year 3 $400,000 Year 4 $500,000   Happy Dog Soap Company’s weighted average cost of capital is 7%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$1,662,284   -$1,362,284   -$1,262,284   -$1,994,741     Making the accept or reject decision Happy Dog Soap Company’s decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it should    project Beta.   Suppose your boss…

Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of Return Beta, b Risk free asset 8% 0.00 Market Portfolio 13% 1.00 Project    1.12 The required rate of return for the project is? THe risk premium for the price is?

The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $550,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $275,000 Year 2 $450,000 Year 3 $425,000 Year 4 $475,000   Happy Dog Soap Company’s weighted average cost of capital is 8%, and project Alpha has the same risk as the firm’s average project. Based on the cash flows, what is project Alpha’s net present value (NPV)? $1,226,950   $776,950   $893,492   $1,251,950     Making the accept or reject decision Happy Dog Soap Company’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.…

Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time: 0 1 2 3 4 5 Cash flow: −250 75 0 100 75 50   Multiple Choice   −0.0977 percent, reject   −9.77 percent, reject   −24.41 percent, reject   24.41 percent, accept

ZLIK Inc is considering methods by which to evaluate a multi-year project that requires a large $55 million investment.  Assuming the project has conventional cash flows, under which conditions would the project be an acceptable investment for ZLIK? Select all that apply. A) NPV < 0 B) NPV > 0 C) IRR > firm's required return D) IRR < firm's required return E) Profitability Index > 1.0 F) Profitability Index < 1.0

man.4

5. Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table:   a. Calculate the investment’s net present value at each of the following discount rates: 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%. b. What does your answer to part b tell you about this project’s IRR? c. Should Froogle invest in this project if its cost of capital is 5%? What if the cost of capital is 15%? d. In general, when faced with a project like this, how should a firm decide whether to invest in the project or reject it?

Please answer all questions a,b and c with explanations. Should each discount be accepted or rejected. Thx