Practice_Test_4 f19 (1)

QUESTION 1 Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. CASH FLOW (A) -$17,000 8,000 7,000 5,000 3,000 CASH FLOW (B) -$17,000 2,000 5,000 9,000 9,500 YEAR 3 4 1 Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case.

Complete the following 6 Wk 3 Financial Exercises: Problem Set 1, Part 2 problems: 1. Calculate the net present value (NPV) of the following cash flow stream if the required rate is 12%: Insert your NPV calculation. Year Cash Flow Is this a good project for the business to accept? Explain why or why not. Insert your answer. 2. Calculate the NPV of the following cash flow projections based on a required rate of 10.5%: Insert your NPV calculation. Year Cash Flow Is this a good project for the business to accept? Explain why or why not. Insert your answer. 3. A company needs to decide if it will move forward with 2 new products that it is evaluating. The 2 initiatives have the following cash flow projections: Project A Project B Year Cash Flow Year Cash Flow Based on the risk of each project, the company has a required rate of return of 11% for Project A and 11.5% for Project B. The company has a $1.5 million budget to spend on new projects for the year. Should the company move forward…

You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y 0 −$10,000 −$10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 a. Calculate each project’s payback period, net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI). b. Which project or projects should be accepted if they are independent? c. Which project should be accepted if they are mutually exclusive? d. How might a change in the cost of capital produce a conflict between the NPV and IRR rankings of these two projects? Would this conflict exist if r were 5%? (Hint: Plot the NPV profiles.) e. Why does the conflict exist?

QUESTIONS THREEYou are a financial Analyst for Bandari Limited. The director of capital budgeting has asked you to analyze two proposed capital investments , project a X and Y. Each project has a cost of $ 10,000 and the cost of capital for each each project is 12%. The projects expected net cash flow are as followsYEAR PROJECT X PRJECT Y0 (10,000) (10,000)1 6,500 3,5002 3,000 3,5003 3,000 3,5004 1,000 3,500For each Project, estimate;(a) Regular pay back period(b) NPV(c) MIRR(d) IRR(e) Cross over rate(f) NPV for each project using the Cross over rate estimated in part (e)(g) Assumed re-investment rate based on (i) IRR assumption(ii) NPV assumption

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You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y -S10,000 -$10,000 6,500 3,500 3,000 3,500 3,500 3,500 3,000 1,000 a. Calculate each project's payback period, net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI). b. Which project or projects should be accepted if they are independent? c. Which project should be accepted if they are mutually exclusive?

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You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below. Expected Net Cash Flows Year Project X Project Y 0 – $10,000 – $10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500   Use the Homework Student Workbook to calculate each project's net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI). Which project or projects should be accepted if they are independent? Which project or projects should be accepted if they are mutually exclusive?

You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below. Expected Net Cash Flows Year Project X Project Y 0 – $10,000 – $10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500   Which project or projects should be accepted if they are independent? Which project or projects should be accepted if they are mutually exclusive?

You are a financial analyst for the Vincenzo Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12%. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year                       Project X                              Project Y 0                              ($10,000)                            ($10,000) 1                             6,500                                     3,500 2                             3,000                                     3,500 3                             3,000                                     3,500 4                             1,000                                     3,500     Calculate each project’s payback period, net present value (NPV), internal rate of return (IRR), and modified internal rate of return (MIRR). Which project or projects should be accepted if they are…

You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12% for both projects. The projects’ expected net cash flows are as follows:   Expected Net cash flows Year Project X Project Y   0 -10000 -10000   1 6350 3600   2 2988 3700   3 3145 3500   4 945 3500   Calculate each project’s payback period, net present value (NPV), internal rate of return (IRR), and profitability index (PI)

Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR   /   CASH FLOW (A)   /CASH FLOW (B)0              -$17,000                -$17,0001               8,000                      2,0002               7,000                      5,0003               5,000                      9,0004               3,000                      9,500 a. Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case. b. Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings. c. Calculate the Internal Rate of Returns (IRR) for both projects (use excel). Which…

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You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B.  Each project has a cost of $50,000, and the cost of capital for each is 10%.  The projects’ expected net cash flows are as follows:      Expected Net Cash Flows Year Project A Project B 0 ($50,000) ($50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5,000 15,000  Which project or projects should be accepted if they are independent?

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B.  Each project has a cost of $50,000, and the cost of capital for each is 10%.  The projects’ expected net cash flows are as follows:      Expected Net Cash Flows Year Project A Project B 0 ($50,000) ($50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5,000 15,000 Which project should be accepted if they are mutually exclusive?

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B.  Each project has a cost of $50,000, and the cost of capital for each is 10%.  The projects’ expected net cash flows are as follows:      Expected Net Cash Flows Year Project A Project B 0 ($50,000) ($50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5,000 15,000 Which project will you select if your decision was based solely on the project’s payback period?

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B.  Each project has a cost of $50,000, and the cost of capital for each is 10%.  The projects’ expected net cash flows are as follows:      Expected Net Cash Flows Year Project A Project B 0 ($50,000) ($50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5,000 15,000 d. How might a change in the cost of capital produce a conflict between the NPV and IRR rankings of these two projects? Would this conflict exist if r were 6%? (Hint: Plot the NPV profiles.)

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B.  Each project has a cost of $50,000, and the cost of capital for each is 10%. The projects’ expected net cash flows are as follows:   Expected Net Cash Flows Year Project A Project B 0 ($50,000) ($50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5,000 15,000   Calculate each project’s payback period, net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI). Which project will you select if your decision was based solely on the project’s payback period? Which project or projects should be accepted if they are independent? Which project should be accepted if they are mutually exclusive? d. How might a change in the cost of capital produce a conflict between the NPV and…

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You are a project manager for your company and you are faced with five potential projects that you can invest in. Free cash flow projections and additional relevant data are given for each project in the table below. Assume that there are no cash flows after year 3. Assume that you can only take each project once and that you can only choose one project. Which project would you invest in? Select the best answer. Project Project A Project B Project C Project D Project E O I. Project A II. Project B III. Project C IV. Project D O V. Project E FCF Forecasts by Year (in $1,000) 0 2 1 500 (400) (400) (300) (250) (300) 75 60 75 135 115 175 3 650 210 190 200 Interest Rate (EAR) 8.0% 10.0% 10.0% 12.0% 12.0% IRR 25.00% 17.57% 15.92% 17.81% 19.96%

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