A firm whose cost of capital is 10% is considering two mutually exclusive projects X and Y, the details of which are: Year Project X Project Y Cost Rs. 70,000 Rs. 70,000 Cash Inflows 1 Rs. 10,000 Rs. 50,000 Rs. 20,000 Rs. 40,000 3 Rs. 30,000 Rs. 20,000 4 Rs. 45,000 Rs. 10,000 5 Rs. 60,000 Rs. 10,000 Compute the Net Present Value at 10%, Profitability Index, and Internal Rate of Return of the two projects. 2.

A firm whose cost of capital is 10% is considering two mutually exclusive projects X and Y, the details of which are: Year Project X Project Y Cost Rs. 70,000 Rs. 70,000 Cash Inflows 1 Rs. 10,000 Rs. 50,000 Rs. 20,000 Rs. 40,000 3 Rs. 30,000 Rs. 20,000 4 Rs. 45,000 Rs. 10,000 5 Rs. 60,000 Rs. 10,000 Compute the Net Present Value at 10%, Profitability Index, and Internal Rate of Return of the two projects. 2.

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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1
The Carlo Company has been allocated RM600,000 on investment projects for the coming year. Four projects, each with a four year life and with the following cash flows are currently being considered: Year 0 1 2 3 4 Project RMk RMk RMk RMk RMk A -300 100 10 200 200 B -200 0 0 0 400 C -100 0 0 80 80 D -150 60 60 60 60 Distinguish between hard and soft capital rationing Assuming that the projects are divisible recommend to the Board, which projects should be accepted using the Net Present Value method and evaluate the total net present value that would be generated Discuss the impact on your analysis of each project being indivisible
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $875.58 $260 $10 $15 Project L -$1,000 $0 $250 $380 $843.71 The company's WACC is 10.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.
You have been asked by MPAC Ltd to analyse two projects, X and Y. Each project costs £1,000,000, and the company's cost of capital is 10 percent per annum. The expected net cash flows are as follows: Project X £600,000 £500,000 £300,000 £100,000 Project Y £200,000 £300,000 £400,000 £675,000 Year 1 3 4 Required: Calculate the following for each project: i) ii) iii) a) net present value modified internal rate of return discounted payback period b) Which project(s) should be accepted if they are independent? Explain why. c) How might a change in the cost of capital produce a conflict between the net present value and internal rate of return rankings of these two projects? Would this conflict exist if the cost of capital were changed? Why does the conflict exist? Discuss critically.
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $884.00 $250 $15 $15 Project L -$1,000 $0 $250 $400 $805.87 The company's WACC is 9.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places. ___%
ZumBahlen Inc. is considering the following mutually exclusive projects: Year 0 1 2 3 4 Project A Cash Flow -$5,000 O a. 16.15% O b. 20.15% O c. 18.15% O d. 22.15% 200 800 Project B Cash Flow -$5,000 3,000 3,000 3,000 5,000 At what cost of capital will the net present value of the two projects be the same? (That is, what is the "crossover" rate?) 800 200
A proposed project is expected to increase accounts receivable by $25,000, decrease inventory by $8,000 and increase accounts payable by $16,000. What is the project's initial requirement for net working capital? Select one: a. +$17,000 b. $1000 c. -$9,000 d. +$9,000
Determine which of the following independent projects should be selected for investment if a maximum of $240,000 is available and the MARR is 10% per year. Use the PW method to evaluate mutually exclusive bundles to perform your analysis. Construct the cash flow diagram for each. Investment, Net Cash Flow, $ per year Life, Project years S -100,000 50,000 8 M -125,000 24,000 8 A -120,000 75,000 8. -220,000 39,000 8 -200,000 82,000 8.
Emusk Inc. is evaluating two mutually exclusive projects. The required rate of return on these projects is 8%. Calculate the profitability index for project A. (Round to 3 decimals) Year 0 1 2 3 4 5 Project A -15,000,000 2,000,000 3,000,000 5,000,000 5,000,000 6,000,000 Project B -15,000,000 6,000,000 6,000,000 6,000,000 1,000,000 1,000,000
A company is considering a project with a cost of $248,000. The cash flows for the project are provided in the table below. If the required return for the project is 14.2%, what is the project's NPV? Year CF 1 $68,500 2 $72,800 3 $75,300 4 $81,400 5 $78,200 $81,422 $128,200 $6,481 $222,838 $254,481
Given the cash flows of the following two project, which project should the company choose if the company can choose only one of the projects? The cost of capital is 11 percent. Year Project A Project B 0 -$200 -$200 1 80 100 2 80 100 3 80 100 4 80 Options: Project A Project B
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

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