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 11%? Project A Year 0: Year 1: Year 2: Year 3: $9,351 O $15,585 $14,027 $13,247 O $11,689 $21,804 $23,881 Cash Flow O $24,919 O $20,766 O $17,651 -$17,500 10,000 16,000 15,000 ABC Telecom is considering a three-year project that has a weighted average cost of capital of 12% and a NPV of $49,876. ABC Telecom can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project? 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

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 11%? Project A Year 0: Year 1: Year 2: Year 3: $9,351 O $15,585 $14,027 $13,247 O $11,689 $21,804 $23,881 Cash Flow O $24,919 O $20,766 O $17,651 -$17,500 10,000 16,000 15,000 ABC Telecom is considering a three-year project that has a weighted average cost of capital of 12% and a NPV of $49,876. ABC Telecom can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project? 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

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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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…
A Company is considering two mutually exclusive projects whose expected net cash flows are in the table below. The company's WACC is 15%. What is the NPV for Project Y? What is the NPV for Project Z? What is the IRR for Project Y? What is the IRR for Project Z? Which Project, if any, should you choose? Time Project Y Project Z 0 $(420.00) $(950.00) | $(572.00) $270.00 2 $(189.00) $270.00 3 $(130.00) $270.00 4 $1,300.00 $ 270.00 5 $720.00 $270.00 6 $980.00 $270.00 7 $(225.00) $270.00 Please show in excel I think im getting the wrong values
A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below: Years 0 1 2 3 4 S -1,100 900 350 100 10 L -1,100 0 300 550 850 The company's cost of capital is 12 percent, and it can get an unlimited amount of capital at that cost. The cutoff payback period is two years. Which project should the company choose based on payback period and discounted payback period? Question 5 options: Based on payback, choose project L; based on discounted payback, also choose L. Based on payback, choose project L; based on discounted payback, choose neither. Based on payback, choose project S; based on discounted payback, also choose S. Based on payback, choose project S; based on discounted payback, choose neither.
Connor Corporation is considering two projects (see below). For your analysis, assume these projects are mutually exclusive with a required rate of return of 12%. project 1 project 2 initial investment $(510,000) $(685,000) cash flow year 1 485,000 610,000 Compute the following for each project: NPV (net present value) PI (profitability index) IRR (internal rate of return) Based on your analysis, answer the following questions : Which is the best choice? Why? Which project should be selected and why? If the projects had the same IRR amounts but different NPV totals, then how would you know which project to select? Explain.
If Fuzzy Button Clothing Company's managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements best describes the difference between the IRR method and the MIRR method? O The IRR method uses the present value of the initial investment to calculate the IRR. The MIRR method uses the terminal value of the initial investment to calculate the MIRR. O The IRR method uses only cash inflows to calculate the IRR. The MIRR method uses both cash inflows and cash outflows to calculate the MIRR. O The IRR method assumes that cash flows are reinvested at a rate of return equal to the IRR. The MIRR method assumes that cash flows are reinvested at a rate of return equal to the cost of capital.
The management of NUBD Co. is considering three investment projects-W, X, and Y. Project W would require an investment of P21,000, Project X of P66,000, and Project Y of P95,000. The present value of the cash inflows would be P22,470 for Project W, P73,920 for Project X, and P98,800 for Project Y. Rank the projects according to the profitability index, from most profitable to least profitable. *
Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy 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 11%? Project A Year 0: Year 1: Year 2: Year 3: O $15,077 O $21,538 $12,923 O $14,000 O $19,384 Cash Flow -$12,500 8,000 14,000 13,000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: -$40,000 9,000 13,000 12,000 11,000 10,000 9,000
consider the following two investments with the cashfow as shown. given the project are mutually exclusive, use Incremental-Investement Analysis to determine which of the two projects you should select. Given that the MARR required by management is 12%.
Home & More is considering a project with cash flows of −$368,000, $133,500, −$35,600, $244,700, and $258,000 for Years 0 to 4, respectively. Should this project be accepted based on the combination approach to the modified internal rate of return (MIRR) if both the discount rate and the reinvestment rate are 14.6 percent? Why or why not?
What is the value of the abandonment option (in millions), in the question below? Round your answer to two decimal places... Sunshine Smoothies Company (SSC) manufactures and distributes smoothies.It is considering the introduction of a "weight loss" smoothie.The project would require a $4 million investment outlay today (t = 0).The after-tax cash flows would depend on whether the weight loss smoothie is well received by consumers.There is a 30% chance that demand will be good, in which case the project will produce after-tax cash flows of $2 million at the end of each of the next 3 years.There is a 70% chance that demand will be poor, in which case the after-tax cash flows will be $1 million for 3 years.The project is riskier than the firm's other projects, so it has a WACC of 12%.The firm will know if the project is successful after receiving first year's cash flows.After receiving the first year's cash flows it will have the option to abandon the project.If the firm decides to…
In this question they say that lenders would need a promised payment of 80 million. How is this solved for in question d. How can i derive this mathmatically
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 12%? Cash Flow Project A Project B Year 0: –$15,000 Year 0: –$40,000 Year 1: 9,000 Year 1: 8,000 Year 2: 15,000 Year 2: 15,000 Year 3: 14,000 Year 3: 14,000 Year 4: 13,000 Year 5: 12,000 Year 6: 11,000 $13,512 $11,923 $15,897 $12,718 $10,333 Newtown Corp. is considering a five-year project that has a weighted average cost of capital of…

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