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 given the following cash flows for a project. Assuming a cost of capital of 12.84 percent. determine the profitability index for this project. Year 0 1 2 3 4 5 O 14981 O 1.68/7 O1.7508 1.6245 1.5613 Cash Flow -$1,115.00 $554.00 $622.00 $648 00 $426.00 $216.00
Consider the following two mutually exclusive alternatives: (a) Determine the IRR on the incremental investment in the amount of$2,000.(b) If the firm's MARR is 10%, which alternative is the better choice?
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. Consider the investment projects given in the following table. n 0 1 2 Project 1 - $1,500 $700 $2,500 Net Cash Flow Project 2 - $5,000 $7,500 $600 Project 3 -$2,200 $1,600 $2,000 Assume that MARR=15% and a financing rate of 12%. a. Compute the IRR for each project. b. On the basis of the IRR criterion, if the three projects are mutually exclusive investments, which project should be selected?
Compute the rate of return for a project that has an initial cost of $40,000 and would provide positive cash flows of $6,000 the first year, $7,000 the second year, $8,000 the third year, $9,000 the fourth year, $10,000 the fifth year, and $11,000 the sixth year.
Financial Manager of Timmy Company is considering two projects (project A and project H), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project H (in $) 0 -100 -100 1 10 70 2 60 50 3 80 20 Timmy Company’s cost of capital is 10 percent. Calculate payback, NPV, IRR, and MIRR for both projects. (Please have a step by step format to your answer with explainations. Thanks (=)
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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