9. Problem 12.17 (Equivalent Annual Annuity)eBookA firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows:TimeAfter-tax Cash Flow XAfter-tax Cash Flow Y-$80,000-$80,00040,00030,00055,00030,00060,000D1234530,00030,0005,000Projects X and Y are equally risky and may be repeated indefinitely. If the firm's WACC is 15%, what is the EAA of the project that adds the most value to the firm? Do not roundintermediate calculations. Round your answer to the nearest dollar.Choose Project -Select , whose EAA-S

6 eBook A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: TimeAfter-tax Cash Flow XAfter-tax Cash Flow Y -$80,000 -$80,000 40,000 30,000 $5,000 30,000 60,000 30,000 30,000 5,000 0 1 2 3 4 Projects X and Y are equally risky and may be repeated indefinitely. If the firm's WACC is 15%, what is the EAA of the project that adds the most value to the firm? Do not round intermediate calculations. Round your answer to the nearest dollar Choose Project Seed whose EAA-$

6 eBook A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: TimeAfter-tax Cash Flow XAfter-tax Cash Flow Y -$80,000 -$80,000 40,000 30,000 $5,000 30,000 60,000 30,000 30,000 5,000 0 1 2 3 4 Projects X and Y are equally risky and may be repeated indefinitely. If the firm's WACC is 15%, what is the EAA of the project that adds the most value to the firm? Do not round intermediate calculations. Round your answer to the nearest dollar Choose Project Seed whose EAA-$

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 23SP: Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site....

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7. Unequal project lives Newtown Corp. has to choose between two mutually exclusive projects. If it chooses project A, Newtown Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 14%? Project A Year 0: Year 1: Year 2: Year 3: $11,416 $10,601 $13,863 Cash Flow -$15,000 9,000 15,000 14,000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: - $40,000 8,000 15,000 14,000 13,000 12,000 11,000
7. Unequal project lives Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 13%? Cash Flow Project A Project B Year 0: –$20,000 Year 0: –$40,000 Year 1: 11,000 Year 1: 8,000 Year 2: 17,000 Year 2: 15,000 Year 3: 16,000 Year 3: 14,000 Year 4: 13,000 Year 5: 12,000 Year 6: 11,000 $15,635 $11,726 $17,199 $14,072 $10,945 Praxis Corp. is considering a five-year project that has a…
7. Unequal project lives Allied Biscuit Co. has to choose between two mutually exclusive projects. If it chooses project A, Allied Biscuit Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 14%? Cash Flow Project A Project B Year 0: –$12,500 Year 0: –$45,000 Year 1: 8,000 Year 1: 9,000 Year 2: 14,000 Year 2: 16,000 Year 3: 13,000 Year 3: 15,000 Year 4: 14,000 Year 5: 13,000 Year 6: 12,000 $17,719 $11,517 $12,403 $15,061 $10,631 Allied Biscuit Co. is considering a four-year project…
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4. Unequal project lives ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC Telecom will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 12%? Cash Flow Project A Year 0: -$17,500 Year 0: $45,000 Year 1: 10,000 Year 1: 9,000 Year 2: 16,000 Year 2: 16,000 Year 3: 15,000 Year 3: 15,000 Year 4: 14,000 Year 5: 13,000 Year 6: 12,000 • $14,124 $14,955 $18,279 ● $16,617 • $13,294 ABC Telecom is considering a three-year project that has a weighted average cost of capital of 10% and a NPV of $45,681. ABC Telecom can replicate this project indefinitely. What…
.5ו Comparing Investment Criteria. onsiuer uie 1onOwing two inutuany exclusive projects: Cash Flow (B) 1TT Year Cash Flow (A) S415,000 -$3,500 49,000 1,920 57.000 1,390 74,000 1,420 530,000 1,050 4 Whichever project you choose, if any, you require a 13 percent return on your investment. a. If you apply the payback criterion, which investment will you choose? Why? b. If you apply the NPV criterion, which investment will you choose? Why? 8If you apply the IRR criterion, which investment will you choose? Why2 d. If you apply the profitability index criterion, which investment will you choose? Why? e. Based on your answers in (a) through (d), which project will you finally choose? Why?
B. Problem: A company is considering two projects. The discount rate is 10 percent, and the projects' cash flows would be: Years 1 3 Project A -S700 S500 $300 S100 Project B -S700 s100 S300 S600 a. Calculate the projects' NPVS and IRRS. b. If the two projects are independent, which project(s) should be chosen? c. If the two projects are mutually exchusive, which project should be chosen?
Q.9.
Consider two mutually exclusive projects with the following expected cash flows : Cash Flows Year Project C Project D 0 -15,000 -21,000 1 6,000 6,000 2 12,000 16,000 3 8,000 14,000 Whichever project you choose, if any, you require a return of 12% on your investment. a. If you apply the discounted payback criterion, which project will you choose? Why? b. If you apply the NPV criterion, which project will you choose? Why? c. Based on your answers in (a) and (b), which project will you finally choose? Why ? (i.e clearly explain the strengths and the weaknesses of each method therefore the reason(s) for choosing the project based on the chosen method)
Central Energy is considering two mutually exclusive projects, Project Red and Project The projects have the following cash flows: Project Red Project White Year Cash Flows Cash Flows -$1,000 -$1,000 1 100 700 200 400 600 200 800 100 Assume that both projects have a 10 percent WACC. What is the internal rate of return (IRR) of the project that has the highest NPV? O14.30% O 21.83% 10.00% O18.24% O 21.96% 2.
Matterhorn Mountain Gear is evaluating two projects with the following cash flows: Year Project X Project Y 0 −$ 316,200 −$ 293,450 1 147,700 138,100 2 165,200 155,300 3 130,300 121,050 What interest rate will make the NPV for the projects equal?
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 1 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flows (P2) -$16,000 9,100 9,100 9,100 a. If the discount rate is 10 percent and the firm applies the Net Present Value (NPV) decision rule, which project should the firm accept? b. If the firm applies the profitability index (PI) decision rule, which project should it take?