5. Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $14,800 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $7,200 and $12,700 at the end of Years 1 and 2, respectively. In addition, Project S can be repeated at the end of Year 2 with no changes in its cash flows. Project L has an expected life of 4 years with after-tax cash inflows of $5,600 at the end of each of the next 4 years. Each project has a WACC of 9%. What is the equivalent annual annuity of the most profitable project? a. 1,418.24 b. 1,042.02 c. 1,560.06 d. 1,162.96 e. 1,031.70

5. Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $14,800 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $7,200 and $12,700 at the end of Years 1 and 2, respectively. In addition, Project S can be repeated at the end of Year 2 with no changes in its cash flows. Project L has an expected life of 4 years with after-tax cash inflows of $5,600 at the end of each of the next 4 years. Each project has a WACC of 9%. What is the equivalent annual annuity of the most profitable project? a. 1,418.24 b. 1,042.02 c. 1,560.06 d. 1,162.96 e. 1,031.70

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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Project A requires an original investment of $64,300. The project will yield cash flows of $19,600 per year for seven years. Project B has a calculated net present value of $3,760 over a four-year life. Project A could be sold at the end of four years for a price of $14,000. Below is a table for the present value of $1 at Compound interest. Year 6% 10% 12% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567 Below is a table for the present value of an annuity of $1 at compound interest. Year 6% 10% 12% 1 0.943 0.909 0.893 2 1.833 1.736 1.690 3 2.673 2.487 2.402 4 3.465 3.170 3.037 5 4.212 3.791 3.605 Use the tables above. (a) Using the present value tables above, determine the net present value of Project A over a four-year life with salvage value assuming a minimum rate of return of 12%. Round your answer to two decimal places. Enter negative values as negative numbers.$fill in the blank 1 (b) Which…
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Consider two mutually exclusive projects – Project X and Project Y with identical initial outlays of RM90,000 and depreciable lives of 5 years. Project X is expected to produce free cash flows of RM32,787 each year. Project Y is expected to generate a single after-tax net cash flow of RM223,880 in year 5. The cost of capital is 15 percent. Required:(a) Calculate the net present value for each project
Muscat Metal is evaluating a project that requires an investment of $150 million today and provides a single cash flow of $180 million for sure one year from now. Muscat Metal decides to use 100% debt financing for this investment. The risk-free rate is 5% and Muscat's corporate tax rate is 21%. Assume that the investment is fully depreciated at the end of the year. The NPV of this project using the APV method is closest to: a. $71 million. b. $10 million c. $17 million. d. $42 million
company is considering three independent projects for October 2021. The three projects are project X, project Y and project Z. Given the following cash flow information, calculate the payback period for each. If the company requires a 3-year payback before an investment can be made, which project(s) would be accepted? Year Project X ($) Project Y ($) Project Z ($) O (Investment) -2,000 -$10,000 -$5,000 1. -2,000 -6,000 -2,000 800 4,000 5,000 3 600 3,000 5,000 4 600 2,000 5,000 400 2,000 2,000
King Racing Company (KRC) is considering which of two mutually exclusiveengine development projects to pursue. King's RPX design has an expectedlife of 4 years and projected cash inflows are $3.6 million at the end ofeach of the first two years and $1.8 million in each of the next twoyears. King's RPB design is more flexible and has an eight-year life.The projected end-of-year flows from the RPB design are $2.4 million ineach of the first two years and $2.0 million in each of the next sixyears. Both projects require an initial investment of $5.4 million, andKing's cost of capital is 12 percent. Frequent changes in racing rulesand engine technology make engine development risky, but King feels thatthe basic designs can be refined and modified. Thus, King often assumesthat continuous replacements can be made as a project's life ends.What is the net present value (on an eight-year extended basis) of theproject with the most value to the company?
Company is evaluating two projects, Project A and Project B. The initial investment on both the projects are $25,000. Both have equal lives. The Project A will generate cash flows of $20,000 and $35,000 in year 2 and year 3. The Project B will generate $15,000 in yea- 1, $22,000 year-2, and $25,000 in year-3. Compute the incremental (B-A) IRR. а. -21.38% b. 56.80% с. 21.38% d. -24.75%
4. Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of S9,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,200 and $7,100 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,600 at the end of each of the next 4 years. Each project has a WACC of 8%. Using the replacement chain approach, what is the NPV of the most profitable project? Do not round the intermediate calculations and round the final answer to the nearest whole number. a. 5,113 b. 4,989 c. 5,425 d. 5,924
Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $14,200 at t = o. Project S has an expected life of 2 years with inflows of $7,400 and $12,800 at the end of Years 1 and 2, respectively. In addition, Project S can be repeated at the end of Year 2 with no changes in its cash: L has an expected life of 4 years with after-tax cash inflows $6,900 at the end of each of the next 4 years. Each project has a WACC of 10%. What is the equival annuity of the most profitable project? Do not round your intermediate calculations. O a $2,420.31 O b. $1,789.52 c. $2,533.33 Od. $2,827.56 Oe $3,110.31
Project S requires an initial outlay at t= 0 of $16,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t= 0 of $27,500, and its expected cash flows would be $10,150 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Select the correct answer. Ca. Project S, because the NPVs > NPVL. Ob. Both Projects S and L, because both projects have IRR's > 0. Oc. Both Projects S and L, because both projects have NPV's > 0. Od. Project I because the NPVL > NPVs. Oe. Neither Project S nor L, because each project's NPV < 0.
Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $37,000, and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend? Select the correct answer. a. Project L, because the NPVL > NPVS. b. Neither Project S nor L, because each project's NPV < 0. c. Both Projects S and L, because both projects have NPV's > 0. d. Both Projects S and L, because both projects have IRR's > 0. e. Project S, because the NPVS > NPVL.
Project Beta is a project which will last for 7 years and which requires an initial outlay of $3,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $1200 per year. The value of incremental, after-tax earnings is $400 per year. The project will require Net Working Capital equal to 10% of incremental revenue. What is the value of incremental free cash flow in Year 0? Question 5Answer a. $-3120 b. $2880 c. $-2880 d. $3120

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