12-11. Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown here: Year X Y 0 -$5,000 -$5,000 1,000 4,500 2 1,500 1,500 تب 3 2,000 1,000 4 4,000 500 The projects are equally risky, and their cost of capital is 12%. You must make a recommendation, and you must base it on the modified IRR (MIRR). Which project has the higher MIRR?

12-11. Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown here: Year X Y 0 -$5,000 -$5,000 1,000 4,500 2 1,500 1,500 تب 3 2,000 1,000 4 4,000 500 The projects are equally risky, and their cost of capital is 12%. You must make a recommendation, and you must base it on the modified IRR (MIRR). Which project has the higher MIRR?

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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Similar questions

Project cost of capital and company cost of capital are exactly equal. True or False True False
The average accounting rate of return (AAR): Select one: A. is the best method of financially analysing mutually exclusive projects. B. is similar to the return on assets ratio. C. measures net income as a percentage of the sales generated by a project. D. considers the time value of money. E. is the primary methodology used in analyzing independent projects.
Suppose that we can describe the world using two states and that two assets are available, asset X an asset Y. We assume the asset’s future prices have the following distribution State Future Price Asset X Future Price Asset Y 1 $25 $50 2 $20 $40 The values of the unit claims implied by these assets are such that: A. C1 and C2 cannot be determined B. C1=1 and C2=1 C. C1=1, but we cannot determine C2 D. C1=5/4 and C2=5/4
Please describe NPV, IRR and their relationship. How do you evaluate each for making an investment decision? That is, what is a favorable NPV and IRR for making an investment decision. If you were developing a capital budgeting process at your employer, how would you prioritize your projects? What is the NPV when IRR = WACC, IRR>WACC, and IRR<WACC? There is a duplex for sale in Absecon for $700,000 at this time. It has 2 units that generate a total of $25,000 in gross rent. The property taxes are $4,000, commercial property insurance is $2,000, flood insurance is $1,000, and annual maintenance is $2,000. You expect to sell it in one year at a price growth of 0%. What is the NPV with a WACC of 10%. Is the IRR greater or less than the WACC? Would you invest in this project and why?
Which term is used to represent the sales level that results in a project's net income exactly equalling zero? Group of answer choices Cash breakeven Operational breakeven Present value breakeven Financial breakeven Accounting profit breakeven
Consider the following sets of investment projects: (a) Classify each project as either simple or nonsimple.(b) Compute the i* for Project A, using the quadratic equation.(c) Obtain the rate(s) of return for each project by plotting the PW as a function of interest rate.
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. If a project's IRR is greater than its WACC, then the MIRR will be greater than the IRR. b. If a project's IRR is greater than its WACC, then the MIRR will be less than the IRR. c. A project's MIRR is always greater than its regular IRR. d. To find a project's MIRR, we compound cash inflows at the IRR and then discount the terminal value back to t = 0 at the WACC. e. A project's MIRR is always less than its regular IRR.
The average accounting rate of return (AAR): is the primary methodology used in analyzing independent projects. O O O O O is the best method of financially analyzing mutually exclusive projects. is similar to the return on assets ratio. considers the time value of money. measures net income as a percentage of the sales generated by a project.
Cash flows that are directly associated with a project are called O sunk costs. terminal costs. incremental cash flows. current cash flows.
Two projects represented by the following two cash flow diagrams are considered to be financially equivalent based on an implied MARR. Determine this MARR. 51 H A A
If we compare two mutually exclusive projects using __________ problems can arise if the projects' cash flows exhibit differences in ___________.

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