Capital rationingManagement of Frisco Films is considering the following capital projects:ProjectCostAnnual After-Tax Cash Flows Number of YearsNew film studios$20,000,000$3.100,00015Cameras and equipment 3,200,000800,0008Land improvement5,000,0001,180,00010Motion picture #117,800,0004,970,000Motion picture #211,400,0003,920,0004Motion picture #38,000,0002,300,0007Corporate aircraft2,400,000770,0005Assume that all projects have no salvage value and that the firm uses a discount rate of 10 percent. Management has decided that only $25,000,000 can be spent in thecurrent year for capital projects.a. Use Excel to determine the net present value, profitability index, and internal rate of return for each of the seven project.Note: Round NPV (final answer) to the nearest whole dollar.Note: Round Pl to two decimal places (i.e. round 1.466 to 1.47).Note: Round IRR percentage to one decimal place (i.e. round 8.555% to 8.6%).Project NameNPVPIIRRFilm studios$ 3,578,910 x1.1813 %vvCameras & equipment1,067,920 x01.33 v18.6 % vLand improvement2,250,628 x1.45 v19.7 % vMotion picture #11,040,276 x1.06 v12.3 % vMotion picture #21,026,008 x1.09 v14.1 % vMotion picture #33,197,320 x1.4 v19.8 % xCorporate aircraft518,916 x1.22 v16.3 % x

Net Present Value is the method of capital budgeting to decide which project to be chosen. The NPV,…

Answered: a. Use Excel to determine the net…

a. Use Excel to determine the net present value, profitability index, and internal rate of return for each of the seven project.

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

See similar textbooks

Related questions

Q: McKnight Company is considering two different, mutually exclusive capital expenditure proposals.…

A: The NPV method is used for the feasibility analysis of a project. It incorporates the time value of…

Q: how many of the following investment criteria always use all of a projects cash flows in their…

A: Project cash flows generally refers to cash amount which is generated from investment which ignores…

Q: Write the various applications that call for annual-worth analysis techniques?

A: Annual worth analysis is the analysis which is done by the managers before taking capital budgeting…

Q: nternal rate of return For the project shown in the following table, calculate the internal rate…

A: IRR is rate at which net present value of the cash flows will be equal to 0 it is calculated using…

Q: According to the Productivity Index, which project should be chosen? Explain why people use the…

A: Net present value is the amount which is computed by subtracting the present value of cash outflow…

Q: How the regular payback periods and discounted payback periods for projects are calculated, after…

A: Pay back period As name itself indicates that pay back period means that how much time required to…

Q: discuss all four investment appraisal methods

A: Investment appraisal is the examination carried out to take affordability and strategic fit into…

Q: Calculate the Net Present Value (NPV) for both projects?

A: Net Present Value - It is the difference between the present value of cash outflow and present value…

Q: Tyler, Inc., is considering switching to a new production technology. The cost of the required…

A: give, r= 13.01% year CF 0 -3764394 1 0 2 0 3 878248 4 878248 5 878248 6 1534992 7…

Q: Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to…

A: The Price Multiple approach can be used to calculate the expected price of a share by estimating the…

Q: Does the accrual accounting rate-of-return method consider income earned throughout a project's…

A: The accrual accounting rate-of-return(ARR) formula splits the average income of an asset by the…

Q: How can we observe four important investment characteristics of the project?

A: There are four features of investment: The asset that was bought. The cash flow generated by the…

Q: Calculate the Payback Period of Project A (expressed in years, months and days) Calculate the…

A: Accounting rate of return (ARR) and benefit to cost ratio are calculated as shown below.

Q: A MIRR is considered as Present value of Costs is equal to Present value of project minus cost…

A: MIRR (Modified Internal Rate of Return) is a financial metric used in capital budgeting to measure…

Q: 5. Data for the 6 major cost items of a certain construction project are given in the following…

A: Net risk is the max risk adjusted for probability of max risk. Net risk = Max risk * probability…

Q: Dwight Donovan, the president of Campbell Enterprises, is considering two investment opportunities.…

A: According to the given question, we are required to compute the net present value and internal rate…

Q: d. What is the profitability index for each project? (Do not round intermediate calculations and…

A: Discount rate is 12% To Find: Profitability Index

Q: Iggy Company is considering three capital expenditure projects. Relevant data for the projects are…

A: Here, Depreciation Method is Straight Line Method.

Q: If the net present value of a project is positive, the project earns a return that is Group of…

A: Introduction: According to the net present value rule, executives and shareholders must only invest…

Q: What is a capital budgeting technique that generates decision rules and associated metrics for…

A: The capital budgeting technique help to evaluate the acceptibility and rejection of a particular…

Q: The IRR of the project is _____ %?

A: IRR refers to the internal rate of return. It is the rate at which NPV of a project is nil.

Q: Use the information provided to answer the questions.5.1 Use the information provided below to…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Define each of the following terms:a. Capital budgeting; payback period; discounted payback period

A: Capital Budgeting is a decision making process in which company requires to evaluate long-term…

Q: Calculate the project profitability index for each product. 2. Calculate the simple rate of return…

A: Profitability index of a project is calculated as shown below.Simple rate of return of a project is…

Q: Determinethe payback period for each b.Calculatethe net present value (NPV) for each…

A: Net present value is the difference between the present value of cash flow and initial investment of…

Q: Measure of worth is greater than 0 O Measure of worth is greater than MARR O Measure of worth is…

A: Decision rule refers to the methods that are used in taking decisions by the investors to select…

Q: List and describe four different types of real options that are associated with investment projects.

A: Real options are opportunities that arise during the life of a project, allowing a company to make…

Q: Evaluate and rank the following projects by using suitable method/s of measuring and comparing…

A: Using excel IRR function Syntax: IRR( cash flows) Project 1: Years 0 1 2 3 Cash flow -100 10 50…

Q: Which of the following methods of capital budgeting uses the average annual profits for evaluation…

A: Capital budgeting is the process that a business uses to determine which proposed fixed asset…

Q: A project's return is referred to as the yield promised by an im·cstment project over its useful…

A: Yes, the project return is referred to as the yield assured by the investment project over project’s…

Q: Identify six profitability ratios, and write their equations.

A: A quantitative method that provides information about the company including its liquidity,…

Q: • What are the most commonly used primary investment criteria. Click all that apply NPV Capital…

A: Solution:- Investment criteria means the methods by which a firm decides which project to accept or…

Q: From the following options, choose the four that correspond to the application of financial…

A: Long Term Financial Management: A long-term financial management incorporates both financial…

Q: Internal rate of return and modified internal rate of return For the project shown in the following…

A: Internal Rate of Return (IRR):IRR is the discount rate that makes the net present value (NPV) of all…

Q: Compute the Profitability Index (PI) for each project? Project A Project B Profitability…

A: Profitability index is an important capital budgeting tool. We use the tool of profitability index…

Q: Which term is used to represent the sales level that results in a project's net income exactly…

A: Cash breakeven is the sales level that results in a project operating cash flow equal to zero.…

Question

Capital rationing
Management of Frisco Films is considering the following capital projects:
Project
Cost
Annual After-Tax Cash Flows Number of Years
New film studios
$20,000,000
$3.100,000
15
Cameras and equipment 3,200,000
800,000
8
Land improvement
5,000,000
1,180,000
10
Motion picture #1
17,800,000
4,970,000
Motion picture #2
11,400,000
3,920,000
4
Motion picture #3
8,000,000
2,300,000
7
Corporate aircraft
2,400,000
770,000
5
Assume that all projects have no salvage value and that the firm uses a discount rate of 10 percent. Management has decided that only $25,000,000 can be spent in the
current year for capital projects.
a. Use Excel to determine the net present value, profitability index, and internal rate of return for each of the seven project.
Note: Round NPV (final answer) to the nearest whole dollar.
Note: Round Pl to two decimal places (i.e. round 1.466 to 1.47).
Note: Round IRR percentage to one decimal place (i.e. round 8.555% to 8.6%).
Project Name
NPV
PI
IRR
Film studios
$ 3,578,910 x
1.18
13 %
v
v
Cameras & equipment
1,067,920 x0
1.33 v
18.6 % v
Land improvement
2,250,628 x
1.45 v
19.7 % v
Motion picture #1
1,040,276 x
1.06 v
12.3 % v
Motion picture #2
1,026,008 x
1.09 v
14.1 % v
Motion picture #3
3,197,320 x
1.4 v
19.8 % x
Corporate aircraft
518,916 x
1.22 v
16.3 % x

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Subject:
How are interest rates determined in the Caribbean and do Caribbean stock markets show zero signs of market efficiency?
Subject: acounting
Exercise 14-7 (Algo) Net Present Value Analysis of Two Alternatives [LO14-2] Perit Industries has $110,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 110,000 $0 $ 20,000 $ 8,600 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept? 6 years Project B $0 $ 110,000 $ 68,000 $0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest…
To estimate the total price for a project, we need to consider 5 requirements to develop the pricing. What are these five main requirements?
a) define the 4 investment criteria discussed/ payback period, discounted payback, NPV, IRR b) explain the benefits offered by each of the 4 criteria; payback period, discounted payback, NPV, IRR c) explain the disadvantages of each criteria; payback period, discounted payback, NPV, IRR d) explain how, when and for what purpose you would use each of the 4 criteria.; payback period, discounted payback, NPV, IRR the 4 criteria is payback period, discounted payback,NPV,IRR
Define each of the following terms:c. Additional funds needed (AFN); AFN equation; capital intensity ratio;self-supporting growth rate
The average accounting rate of return (AAR): is the primary methodology used in analyzing independent projects. O O O O O is the best method of financially analyzing mutually exclusive projects. is similar to the return on assets ratio. considers the time value of money. measures net income as a percentage of the sales generated by a project.
Define the term Net Future Worth and draw a Project Balance Diagram?
explain it correctly
In analysis of projects, Elucidate on the six major objectives of financial analysis
How many IRRs could be estimated for each project below: Project A has ________ (1, 2, 3, or 4) IRR(s). Project B has _________(1,2, 3, or 4) IRR(s). Project C has _________(1,2, 3, or 4) IRR(s). Project D has _________(1,2, 3, or 4) IRR(s)

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS