31. Assume two mutually exclusive projects have the estimated net incrementalafter-tax cash flows shown below. The company's required rate of return is12%. For each project, compute a) the net present value, b) intenal rate ofreturn, c) profitability index and d) the payback period. e) State which projectshould be chosen and why.ProjectInitial investmentAnnual after-tax cash flowsYear 1Year 2Year 3$100,000$150,00020,00030,00040,00050,00060,00039,00039,00039,00039,00039,00039,000Year 4Year 5Year 6

Net present value (NPV) is the difference between the present value of cash inflows and the present…

Answered: 31. Assume two mutually exclusive…

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 evaluating an investment project, which has a cost of $161,000 today and is expected to provide after-tax annual cash flows of $20,000 for seven years. In order to compute the MIRR, you are modifying the cash flows. Assuming the cost of capital is 9.1 percent, what is the terminal cash flow of the modified cash flows? Question 12 options: $173,074 $176,474 $178,474 $180,974 $182,874 $184,574
3) Consider the following two projects: Net Cash Flow Each Period Initial Outlay 1 2 3 4 Project A $4,000,000 $2,003,000 $2,003,000 $2,003,000 $2,003,000 Project B $4,000,000 0 0 0 $11,000,000 Calculate the net present value of each of the above projects, assuming a 14 percent discount rate. What is the internal rate of return for each of the above projects? Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above. If 14 percent is the required rate of return, and these projects are independent, what decision should be made? If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
Consider the following sets of investment projects: Compute the equivalent annual worth of each project at i = 13%, and determine the acceptability of each project.
Accounting Draw the cash flow diagram for the given project below and then calculate the project net profit. The following table shows the activities description, dependency, duration, and cost elements. Assume the followings: Project overhead 8%. Tax 3%. Bond 1.25%. Profit 6%. Interest rate 9% per year. Down payment 10% with a guarantee letter, which costs 0.25% per month paid to the bank at the project start date. A performance guarantee letter of 10% will be submitted from contractor at the project begin. Invoices are submitted every month and will be paid a month later. Retention 10% and will be paid at the last invoice. Subcontractors: retention 10% will be paid at the last invoice, down payment 20%. Labor: labor expenses to be paid bi-weekly. Equipment: equipment expenses
The company will invest $150,000 in a project and average annual income $50,000. The investment will provide the following inflows: Year Cash inflow 1 $ 25,000 2 45,000 3 30,000 4 50,000 5 70,000 Calculate: Net present value at 15% discount factor. Payback period Accounting rate of return Note: 15% discount factor : Year 15% discount factor 1 0.8696 2 0.7561 3 0.6575 4 0.5718 5 0.4972
Consider the investment project with the following net cash flows: What would be the value of X if the project's IRR is 25%?
M/s Sons & Sons is considering two projects, A & B, with cash flows as shown below: period Cash Flow of Project A Project B 0 -90,000 -150,000 1 30,000 72,000 2 30,000 35,000 3 30,000 40,000 4 30,000 25,000 Calculate discounted payback period, net present value and internal rate of return for each project using opportunity cost of capital 13 % & 9% for project A & B respectively. Which project(s) should be accepted if : (i) The projects are mutually exclusive and there is no capital constraint. (ii) The projects are independent and there is no capital constraint. (iii) The projects are independent and there is a total of $100,000 of financing for capital outlays in the coming period. Why the cost of capital for A might be higher than for B. State possible reason(s) (show the calculations & formula on word/excel)
4. Capital expenditure of a new investment project is $ 120,000,000; the expected annual net cash flows generated from the investment are given below. Suppose that the company's cost of capital is 10%, calculate and comment on the accounting rate of return, internal rate of return, and discounted payback period of the project. Years Cash flows($000) DF (10%) 1 40,000 0.909 2 42,000 0.826 3 50,000 0.751 4 52,000 0.683 5 55,000 0.621 SV 60,000 0.565
Find the net present value (NPV) for a proposed project costing $22,960. Assume that the appropriate cost of capital for projects of this risk level, at this company is 9.58%, and the estimated cash flows for the life of the project are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $6,920 $5,329 $6,451 $9,655 $12,368 $4,319
The following table presents information on four different open-end mutual funds. Use the information in the table to answer the questions that follow. FUND NAV NET CHG YTD % RET QtrF p 13.32 0.04 3.1 TmRE r 20.77 0.14 6.0 MRGG 29.81 0.28 8.5 MajTrk 44.21 0.37 9.6 The mutual fund charges a 12b-1 fee.
1. The Bolster Company is considering two mutually exclusive projects: Year Cash Flow A Cash Flow B -$100,000 31,250 31,250 -$100,000 1 2 3 31,250 31,250 31,250 4 5 200,000 The required rate of return on these projects is 12%.
The following table contains the estimated cash flows of a project. Assume the appropriate discount rate (hurdle rate) is 14%. Year Operating Cash Flow 0 -$20,000 1 $7,000 2 $8,000 3 $9,000 4 $4,000 a. What is the payback period of project 1?

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