1. Kenny, Inc. has identified the following two mutually exclusive projects.Project A-$25,00020,0005,0003,00010,000Considering 10% required return for both projects.Project B-$28,0007,0001,000-2,00030,000Year23a. Calculate the NPV for each project, which one is more profitable? Why?b. If the payback cut-offis four years, which project should be accepted? Why?c. If the Internal Rate of Return (IRR) of projects A and B are 10% and 12% respectfully,which project would you choose? Why?d. Considering 10% required return, and applying profitability index criteria whichinvestment would you choose? Why?e. After applying the last four investment criteria, which project should be chosen forinvestment and why?2. The Rolston Co. is growing quickly. Dividends are expected to grow at the 20% rate for thenext three years, with the growth rate falling off to a constant 10% thereafter. If thecompany just paid a $3 dividend and the required return is 12%, what is the current shareprice?

Net present value is the technique used in capital budgeting to evaluate the acceptability of the…

Answered: 1. Kenny, Inc. has identified the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A new project will have an intial cost of $100,000. Cash flows from the project are expected to be $-20,000, $40,000, $30,000, $30,000 and $40,000 over the next 5 years, respectively. Assuming a discount rate of 10%, what is the project's NPV? Question 3 options: $(16,049.26) $(17,257.27) $(15,531.54) $(17,602.41) $(16,566.98)
Darin Clay, the CFO of MakeMoney.com, has to decide between the following two projects: Year 0 1 2 3 Project Million -$ 2,800 10 + 320 1,120 2,000 Project Billion -$10 /0 +1,200 2,000 3,200 The expected rate of return for either of the two projects is 13 percent. What is the range of initial investment (/o) for which Project Billion is more financially attractive than Project Million? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Initial investment
A small company wants to invest in Project A or B. The cash flows for both are shown below. Determine the payback period for each project assuming a MARR of 5% and suggest which project should be selected based on discounted payback period analysis.
(Ignore income taxes in this problem.) Your Company has a telephone system that is in poor condition. The system must be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Present System Proposed New System Purchase cost when new $100,000 $110,000 Accumulated depreciation 90,000 Overhaul cost needed now 80,000 Working capital required 50,000 Annual cash operating costs 30,000 20,000 Salvage value now of old system 10,000 Salvage value in 8 years 2,000 15,000 Your Company uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. What is the net present value of the new system alternative? Enter your answer without dollar signs. If the NPV is negative enter with a minus sign in front.
es Andouille Spices, Incorporated, has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 14 percent. Year 0 Project F -$ 138,000 Project G -$ 208,000 12345 58,500 38,500 51,500 53,500 61,500 91,500 4 56,500 121,500 51,500 136,500 a. Calculate the payback period for both projects. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. Calculate the NPV for both projects. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. c. Which project, if any, should the company accept? a. Project F Project G b. Project F C. Project G Project G years years
Compute the payback statistic for Project A if the appropriate cost of capital is 7 percent and the maximum allowable payback period is four years. (Round your answer to 2 decimal places.) Project A Time: 0 1 2 3 4 5 Cash flow: −$1,100 $390 $510 $540 $320 $120 Should the project be accepted or rejected?multiple choice accepted rejected
Determine which of the following independent projects should be selected for investment if a maximum of $240,000 is available and the MARR is 10% per year. Use the PW method to evaluate mutually exclusive bundles to perform your analysis. Construct the cash flow diagram for each. Investment, Net Cash Flow, $ per year Life, Project years S -100,000 50,000 8 M -125,000 24,000 8 A -120,000 75,000 8. -220,000 39,000 8 -200,000 82,000 8.
Emusk Inc. is evaluating two mutually exclusive projects. The required rate of return on these projects is 8%. Calculate the profitability index for project A. (Round to 3 decimals) Year 0 1 2 3 4 5 Project A -15,000,000 2,000,000 3,000,000 5,000,000 5,000,000 6,000,000 Project B -15,000,000 6,000,000 6,000,000 6,000,000 1,000,000 1,000,000
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Coore Manufacturing has the following two possible projects. The required return is 12 percent. Year Project Y Project Z 0 -$27,500 -$55,000 1 13,500 19,500 234 2 11,900 26,000 3 14,300 17,500 9,900 24,000 a. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which, if either, of the projects should the company accept? a. Project Y Project Z 1.38 ง b. Project Y 3 decimal places required. Project Z c. Accept project x
The following information is available on two mutually exclusive projects. All numbers are in ‘000s. Project Year 0 Year 1 Year 2 Year 3 Year 4 A $700 $300 $300 $400 $400 B $700 $600 $300 $200 $100 a: If the minimum acceptable rate of return is 10%, which project should be selected using the Net Present Value (NPV) method? Which project should be selected if the Internal Rate of Return (IRR) method is used? b: At what cross‐over rate would the firm be indifferent between the two projects? What is the NPV for both projects at the crossover rate? c: How much should cash flow in year 3 for project B increase or decrease in order for NPV(B) to be equal to NPV(A)?
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