16. Lancaster Corp is considering two equally risky, mutually exclusive projects, both of which have normal cash flows. Project A has an IRR of 11% 18 while Project B's IRR is 14%. When the cost of capital is 8%, the projects have the same NPV. Given this information, which of the following statements is CORRECT? A. If the cost of capital is 9%, Project A's NPV will be higher than Project B's. B. If the cost of capital is 6%, Project B's NPV will be higher than Project A 's. C. If the cost of capital is 9%, Project B's NPV will be higher than Project A's. D. If the cost of capital is 13%, Project A's NPV will be higher than Project B's.

16. Lancaster Corp is considering two equally risky, mutually exclusive projects, both of which have normal cash flows. Project A has an IRR of 11% 18 while Project B's IRR is 14%. When the cost of capital is 8%, the projects have the same NPV. Given this information, which of the following statements is CORRECT? A. If the cost of capital is 9%, Project A's NPV will be higher than Project B's. B. If the cost of capital is 6%, Project B's NPV will be higher than Project A 's. C. If the cost of capital is 9%, Project B's NPV will be higher than Project A's. D. If the cost of capital is 13%, Project A's NPV will be higher than Project B's.

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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You are considering two similar but mutually exclusive investments. You have calculated that: Project A has an NPV = $7,600 and IRR = 19.80% Project B has an NPV = $11,200 and IRR = 17.30% Which project would you select? Project A O Project B
Am. 121.
Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of return Beta, b Risk-free asset 9% 0.00 Market portfolio 14% 1.00 Project 1.74 a. Calculate the required rate of return for the project, given its level of nondiversifiable risk. b. Calculate the risk premium for the project, given its level of nondiverisifiable risk.
You are considering the following two projects and can take only one. Your cost of capital is 10.7%. The cash flows for the two projects are as follows ($ 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 -
CVD Ltd needs to choose from three mutually exclusive projects. The net cash flows from the projects will depend on market demand. All of the projects will last for only one year. The forecast net cash flows and their associated probabilities are given below:Market Demand Probability Weak 0.20 Average 0.50 Good 0.30 Market Demand Project A Project B Project C Weak R450 000 R350 000 R550 000 Average R550 000 R400 000 R500 000 Good R650 000 R450 000 R700 000 Required:Calculate the expected value of the net cash flows from each of the three projects.
39. Deyland Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. WACC = 9%. Year 0 a. $24.71 b. $27.46 c. $30.51 d. $33.90 e. $37.29 1 2 3 4 CF, -$1,100 $375 $375 $375 $375 CF₂ $2,200 $725 $725 $725 $725
Bates & Reid, LLC, has identified two mutually exclusive projects, A and B. Project A has a NPV of $14,050.47. Project B has cash flows as described below. Year Cash Flow B 0 -$77,000 1 35,000 2 25,000 3 25,000 4 25,000 If the WACC is 8%, then B’s NPV is _______ and therefore the firm should accept _________ $11,337.55; project B because NPVA > NPVB. $15,062.43; project B because NPVA < NPVB. $15,062.43; project A because NPVA < NPVB. The projects are equally profitable. $11,337.55; project A because NPVA > NPVB.
am. 123.
A project has an initial investment of 100. You have come up with the following estimates of the project's cash flows (there are no taxes): Revenues Costs Pessimistic 15 8 Multiple Choice -30, +20, +70. Suppose the cash flows are perpetuities and the cost of capital is 10 percent. Conduct a sensitivity analysis of the project's NPV to variations in revenues. (Answers appear in order: [Pessimistic, Most Likely, Optimistic].) -50, +50, +70. -100, -50, +80. Most Likely +5, +11, +18. 20 8 Optimistic 25 8

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