5) A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: Project A Project B Initial Investment $40,000 End-of-Year Cash Flows $20,000 20,000 20,000 Year 0 a) If the firm in the table above has a required payback of two (2) years, determine the projects which should be accepted / rejected? Discuss briefly. -$1,000,000 Initial Investment $90,000 b) Assume that the new financial analyst does not like the payback approach and determines that the firm's required rate of return is 15 percent. What do you expect about his recommendation? Discuss briefly. $100,000 (Initial outlay) Year 1 End-of-Year Cash Flows $40,000 40,000 80,000 Year 5 Operating Cash Inflows Year 2 Year 3 Year 6 $250,000 $100,000 $500,000 $100,000 $600,000 Year 4

5) A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: Project A Project B Initial Investment $40,000 End-of-Year Cash Flows $20,000 20,000 20,000 Year 0 a) If the firm in the table above has a required payback of two (2) years, determine the projects which should be accepted / rejected? Discuss briefly. -$1,000,000 Initial Investment $90,000 b) Assume that the new financial analyst does not like the payback approach and determines that the firm's required rate of return is 15 percent. What do you expect about his recommendation? Discuss briefly. $100,000 (Initial outlay) Year 1 End-of-Year Cash Flows $40,000 40,000 80,000 Year 5 Operating Cash Inflows Year 2 Year 3 Year 6 $250,000 $100,000 $500,000 $100,000 $600,000 Year 4

Name: C5) A firm is evaluating two projects that are mutually exclusivewith
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Description: C5) A firm is evaluating two projects that are mutually exclusivewith initial investments and cash flows as follows:Project AProject BInitialInvestment$40,000End-of-YearCash Flows$20,00020,00020,000Year 0a) If the firm in the table above has a requi

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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Consider the following two mutually exclusive projects: Year Cash Flow(A) Cash Flow(B) 0 –$ 342,000 –$ 50,500 1 53,000 24,800 2 73,000 22,800 3 73,000 20,300 4 448,000 15,400 Whichever project you choose, if any, you require a return of 14 percent on your investment. a-1 What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2 If you apply the payback criterion, which investment will you choose? Project A Project B b-1 What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2 If you apply the discounted payback criterion, which investment will you choose? Project A Project B c-1 What is the NPV for each…
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