ch-12 (1)

10. Diaz Camera Company is considering two investments, both of which cost $10,000. The cash flows are as follows: Project B $5,000 Year Project A $6,000 4,000 3,000 .............. 3 3,000 8,000 a. Which of the two projects should be chosen based on the payback method? b. Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent. c. Should a firm normally have more confidence in answer a or answer b ?

The following are the cash flows of two projects: Project B Year Project A $ (300) 0 $ (300) 1 180 200 2 180 200 3 180 200 4 180 If the opportunity cost of capital is 12%, what is the profitability index for each project? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Project A B Profitability Index

Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% return from its investments. For each alternative project, compute the (a) net present value and (b) profitability index. (Round your answers in part b to two decimal places.) If the company can only select one project, which should it choose?

You are analyzing two proposed capital investments with the following cash flows: Year   Project X   Project Y   0   - $20,000   - $20,000   1   12,630   7,470   2   5,660   7,470   3   6,360   7,470   4   1,920   7,470   The cost of capital for both projects is 10 percent.Calculate the profitability index (PI) for each project. (Do not round discount factors. Round intermediate calculations to 2 decimal places, e.g. 15.25 and final answer to 4 decimal places, e.g. 1.2527.) - The PI for project X is                 and the PI for project Y is              . - Which project or projects should be accepted if you have unlimited funds to invest?  ( Project x, Project Y, Neither Project, Both Projects) - Whch project should be accepted if they are mutually exclusive? (Project X, Project Y, or neither project)

Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows:               expected Net Cash Flows Year Project A Project B 0 ($400) ($650) 1 -528 210 2 -219 210 3 -150 210 4 1100 210 5 820 210 6 990 210 7 -325 210 a. Construct NPV profiles for Projects A and B. b. What is each project’s IRR? c. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?d. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.)e. What is the crossover rate, and what is its significance?

Consider two investments A and B with the following sequences of cash flows: Net Cash Flow n Project A Project B 0 -$120,000 -$100,000 1 20,000 15,000 2 20,000 15,000 3 120,000 130,000 (a) Compute the IRR for each investment. (b) At MARR = 15%, determine the acceptability of each project. (c) If A and B are mutually exclusive projects, which project would you select, based on the rate of return on incremental investment?

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 Project A $ 8,328 (10,000) Project B $ 10,809 (10,000) Project C $ 10,685 (10,000) 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? Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the net present value of each project. Potential Projects Project A Project B Project C Present value of net cash flows Initial investment Net present value

The following are the cash flows of two projects: Year Project A 0 $ (240) Project B. $ (240) 1 120 140 2 120 140 3 4 120 120 140 If the opportunity cost of capital is 12%, what is the profitability index for each project? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Project A B Profitability Index +

You and a coworker are analyzing two proposed capital investments with the following cash flows: Year Project A Project B 0 -$22,000 -$38,000 1 17,000 9,500 2 5.400 9,500 3 5,400 9,500 4 2,000 26,600 The cost of capital for both projects is 10 percent. Calculate the profitability index (PI) for each project. (Do not round discount factors. Round intermediate calculations to 2 decimal pla e.g. 15.25 and final answer to 4 decimal places, e.g. 1.2527.)

Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of return is 16%. Use this information for the next 3 questions. Year Project A Cash Flow Project B Cash Flow ($50,000) ($20,000) 1 15,000 6,000 15,000 6,000 15,000 6,000 4 13,500 5,400 13,500 5,400 6,750 5,400 What is the profitability index of project B? 1.03 1.06 .94 1.01 1.09

Case 1: Assume you are evaluating two mutually exclusive projects,the cash flows of which appear below, and that your company uses a cost of capital of 8 percent to evaluate projects such as these. Time Project A Cash Flow Project B Cash Flow 0 -$650 -$700 1 100 300 2 250 -200 3 250 550 4 200 200 5 100 80 a. Calculate the payback of Project A. b. Calculate the discounted payback of Project A. c. Calculate the IRR of Project A. d. Using the NPV method and assuming a cost of capital of 8 percent, which of these projects should be accepted?

ZXA is considering investments in four different projects. Select all projects that have conventional cash flows? ___________  (A, A and D, B and C, or C). Which projects will have multiple IRRs? ________________ (A, A and D, B and C, or C).

The following are the cash flows of two projects: Year Project A Project B 0 $ (200) $ (200) 1 80 100 2 80 100 3 80 100 4 80   If the opportunity cost of capital is 11%, what is the profitability index for each project Note: Do not round intermediate calculations. Round your answers to 4 decimal places.

Use the following information to answer questions 5-7. You are evaluating two investment projects for your company. The cost of capital is 12%. The cash flows for each investment are given below Project A B 1-0 -200,000 - 100,000 El 58,256 44,526 1-2 58,256 44,526 1-3 58,256 44,526 1-4 58,256 0 t=5 58,256 0 Using the payback criterion and a cutoff payback period of 2.5 years, determine whether each project is acceptable.

Cullumber Corp. management is evaluating two independent projects. The costs and expected cash flows are given in the following table. The cost of capital is 13.73 percent. Year 0 1 2 3 4 5 Project A - $287,839 109,300 109,300 109,300 109,300 109,300 Project B - $401,058 The NPV of project A is $ There is The IRR of Project A is a. Calculate the projects' NPV. (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) 138,190 Cullumber should choose 162,830 b. Calculate the projects' IRR. (Round answer to 2 decimal places, e.g. 15.25%.) Cullumber should choose 179,500 118,800 119,800 c. Which project should be chosen based on NPV? Based on IRR? Is there a conflict? and project B is $ % and Project B is will be accepted. ◆ based on NPV. based on IRR. between the NPV and IRR decisions. d. If you are the decision maker for the firm, which project or projects will be…

Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 7% return from its investments (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Initial investment Net cash flows in: Year 1 Year 2 Year 3 Required A Required B Project X1 Year 11 Year 2 Year 3 a. Compute each project's net present value. b. Compute each project's profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index? Totals Initial investment Net present value Complete this question by entering your answers in the tabs below. Project X2 Year 1 Year 2 Year 3 Totais Initial investment S Project X1 $ (116,000) Compute each project's net present value. (Round your final answers to the nearest dollar) Net Cash Flows Present Value of Net Cash Flows S 43,000 53,500 78,500 Required C O 0 Present Value of 1 at 7% Project X2 $ (192,000) $ 87,000 77,000…

Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of return is 16%. Use this information for the next 3 questions. Year Project A Cash Flow Project B Cash Flow ($50,000) ($20,000) 15,000 6,000 15,000 6,000 3 15,000 6,000 4 13,500 5,400 13,500 5,400 6,750 5,400

You are analyzing two proposed capital investments with the following cash flows: Year 0 1 2 3 4 Project X - $20,000 12,230 6,360 6,360 2,020 Project Y - $20,000 The Pl for project X is 6,670 6,670 6,670 6,670 The cost of capital for both projects is 10 percent. Calculate the profitability index (PI) for each project. (Do not round discount factors. Round intermediate calculations to 2 decimal places, e.g. 15.25 and final answers to 4 decimal places, e.g. 1.2527.) 1.1266 and the PI for project Y is Which project, or projects, should be accepted if you have unlimited funds to invest? If you have unlimited funds you should invest in Which project should be accepted if they are mutually exclusive? If they are mutually exclusive you should invest in 1,0572