1) A company is considering two projects. The projects have the following expected cash flows:t0123Project X cash flowProject Y cash flow.-350,000 100,000 100,000 200,000-120,000 10,000 20,000 30,000(a) Which project should they prefer if the cost of capital is í = 2%?(b) Which project should they prefer if the cost of capital is i = 12%?450,00030,000OptionAB(c) Which of the following set of options represents the internal rates of return of the two projects?Project X IRRProject Y IRR7.5%13.9%8.9%12.512.5%8.9%13.9%7.5%CD5630,00010,00030,000 40,000

When a company has alternative projects, it has to evaluate which project is more beneficial to the…

Answered: 1) A company is considering two…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider a project with the following cash flows. Year Cash Flow 0 -$17,000 1 45,000 2 -29,000 What’s the IRR of the project? If a firm’s cost of capital is 17%, should the firm accept the project? Group of answer choices 53.8%; accept the project 10.9% and 53.8%; accept the project 10.9%, and 53.8%; reject the project 10.9%; reject the project
Consider projects A and B with the following cash flows: C0 C1 C2 C3 A − $ 27 + $ 16 + $ 16 + $ 16 B − 52 + 27 + 27 + 27 a-1. What is the NPV of each project if the discount rate is 10%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) a-2. Which project has the higher NPV? b-1. What is the profitability index of each project? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b-2. Which project has the higher profitability index? c. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects? d. Which project is most attractive to a firm that is limited in the funds it can raise?
3. You are analyzing the following two mutually exclusive projects and have developed the following Which information. Please calculate the IRRS for the two projects and the crossover rate. project should you accept if the cost of capital is 5%, and which project should you accept if the cost of capital is 10%? Year 0 1 3 Project A Cash Flow -$84,500 $29,000 $40,000 $27,000 IRR A: IRR B: Crossover Rate: If WACC-5%, accept If WACC=10%, accept Project B Cash Flow -$76,900 $25,000 $35,000 $26,000 J
A firm is considering a project with the following cash flows: Time 0 = -$20,000, Years 1-5 = $4,500. Should the project be accepted if the cost of capital is 5%? A. No; The IRR of the project is 12.5%. B. Yes; The IRR of the project is 12.5%. C. Yes; The IRR of the project is 4.06%. D. No; The IRR of the project is 4.06%.
Diana, Industries is considering a project which has the following cash flows: Year Cash Flow 0 ? 1 $4,000 2 4,000 3 3,000 4 1,500 The project has a payback period of 2.5 years. The firm’s cost of capital is 12 percent. What is the project’s net present value (NPV)? What does the NPV rule advice regarding this investment opportunity?
3. Lopez Industries has identified the following two mutually exclusive capital investment projects: Year Project A Project B 0 1 2 3 4 -16000 400 800 13000 -15500 12500 8000 800 14000 800 What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11%, what is the NPV for each of these projects? Which project should the firm accept if they apply the NPV rule?
You are considering the following two projects and can take only one. Your cost of capital is 10.7%. The cash flows for the two projects are as follows ($ million) a. What is the IRR of each project? b. What is the NPV of each project at your cost of capital? c. At what cost of capital are you indifferent between the two projects? d. What should you do? a. What is the IRR of each project? The IRR for project A is %. (Round to one decimal place.) Data table D (Click on the following icon in order to copy its contents into a spreadsheet) Project A Year 0 -$100 B -$100 Year 1 $22 $49 Year 2 $31 $39 Print Done Year 3 Year 4 $39 $49 $31 $21 -
Which of the following comes closest to the net present value (NPV) of a project whose initial investment is $5 and which produces two cash flows: the first at the end of year 2 of $3 and the second at the end of year 4 of $7? The required rate of return is 13%? Select one: a. $1.84 b. $0 c. $1.64 d. $2.05 e. $2.26
You are considering the following two projects and can take only one. Your cost of capital is 10.6%. The cash flows for the two projects are as follows ($ million): a. What is the NPV of each project at your cost of capital? b. What is the IRR of each project? c. At what cost of capital are you indifferent between the two projects? d. What should you do? a. What is the NPV of each project at your cost of capital? The NPV for project A is $ Data table million. (Round to two decimal places.) (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 Project A $22 B $48 Year 0 - $100 - $100 Year 2 $28 $42 Year 3 $42 $28 Year 4 $48 $20 - X
If you invested $180 million into a project today, and achieved operating cash flows of $50million, $30million, $40million, $80million, and $30million, how would you measure the following: a. NPV (assuming 7.8% cost of capital) b. IRR c. How would you mathematically and verbally describe NPV relative to the IRR?
A company is considering a 4-year project with the following cash flows: C0 =-$20,000 C1 =C2 =C3 =C4 =$7,000 If the company’s opportunity cost of capital is 12%, then compute the following for the project: a) the project’s NPV b) the project’s IRR c) determine if the project will have more than 1 IRR d) The project’s PI e) Should the project be rejected because its payback period is longer than two years? f) Should the project be rejected because its IRR is greater than its required rate of return?
You are offered the chance to participate in a project that produces the following cash flows: C0 C1 C2 +$ 5,000 +$ 4,000 −$ 11,000 The internal rate of return is 13.6%. If the opportunity cost of capital is 12%, what is the net present value of the project? Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.

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