Amstutz and Wilson (A&W) is a partnership that is considering two alternative investment opportunities.The first investment opportunity will have a five-year useful life, will cost $12,300.59, and will generate expected cash inflows of$3,000 per year.The second investment is expected to have a useful life of three years, will cost $6,965.31, and will generate expected cash inflows of$2,900 per year.Assume that A&W has the funds available to accept only one of the opportunities. (PV of $1 and PVA of $1)Note: Use appropriate factor(s) from the tables provided.Requireda. Calculate the internal rate of return of each investment opportunity.Note: Do not round intermediate calculations.b. Based on the internal rates of return, which opportunity should V&K select?a First investmenta Second investmentb. V&K should select theInternal Rate of Return%%

IRR is the required rate of return for the project to have zero Net Present value.IRR can be…

Answered: Amstutz and Wilson (A&W) is a…

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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McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $450,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $73,500. Project B will cost $274,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $46,800. A discount rate of 9% is appropriate for both projects. Click here to view the factor table. Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A $ Profitability index- Project A Net present value - Project…
An engineer at Suncore Micro, LLC calculated the present worth of mutually exclusive bundles, each composed of one or more independent projects. Select the acceptable bundle if the capital investment limit is $50,000 and the MARR is 15% per year. Project Bundle Initial Investment PW, $ 1 −27,000 2400 2 −33,000 9200 3 −44,000 7300 4 −51,000 11,400 5 −66,000 10,800 I know you have already solved this exercise.
Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of $11,500 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,900 and $7,700 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 $4,400 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. $3,399 b. $3,925 c. $3,073 d. $2,768 e. $3,620
Portland Gaming, Inc. uses payback to evaluate potential projects and has a required payback period of four years for all projects. Currently, Portland is evaluating two independent projects. Project A has an expected payback period of 3.6 years and a net present value of $8,400. Project B has an expected payback period of 4.2 years with a net present value of $26,800. Which projects should be accepted based on the payback decision rule? Group of answer choices Project A only Project B only Both A and B Neither A nor B Answer cannot be determined based on the information given.
A partnership is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.9 million plus $100,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period. (See Table 4.2 for the applicable depreciation percentages.) Additional sales revenue from the renewal should amount to $1,200,000 per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 40% of the additional sales. The firm is subject to a tax rate of 40%. (Note: Answer the following questions for each of the next 6 years.) What incremental earnings before interest, taxes, depreciation, and amortization will result from the renewal? What incremental net operating profits after taxes will result from the renewal? What operating cash flows will result from the renewal?
Lakelord Company is considering two mutually exclusive projects, A and B. Project A costs $89977 and is expected to generate $64801 in year one and $66409 in year two. Project B costs $110404 and is expected to generate $58366 in year one, $62248 in year two, $68386 in year three, and $49405 in year four. The firm's required rate of return for these projects is 0.071. The net present value for Project A is Instruction: Type ONLY your numerical answer in the unit of dollars, NO $ sign, NO comma, and round to the nearest whole number. E.g., if your answer is $7,001.56, should type ONLY the number 7002, NEITHER 7,001.6, $7001.6, $7,001.6, NOR 7001.56. Otherwise, Blackboard will treat it as a wrong answer.
Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial after-tax investment of $11,000 and are typical average-risk projects for the firm. Project A has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,000 at the end of Years 1 and 2, respectively. Project B has an expected life of 4 years with after-tax cash inflows of $5,000 at the end of each of the next 4 years. The firm's WACC is 10%. a. If the projects cannot be repeated, which project should be selected if Crockett uses NPV as its criterion for project selection? Project should be selected. b. Assume that the projects can be repeated and that there are no anticipated changes in the cash flows. Use the replacement chain analysis to determine the NP of the project selected. Do not round intermediate calculations. Round your answer to the nearest cent. Since Project 's extended NPV = $ , it should be selected over Project A ~ with an…
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial investment for each project is $50,000. Project A will generate cash inflows equal to $15,625 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $99,500 at the end of the fifth year (i.e., no cash flows are generated in the first four years). The required rate of return of Ace Inc. is 10 percent. Which project should Ace Inc. purchase? Group of answer choices Project A should be purchased because it has a higher net present value (NPV) than Project B. Project A should be purchased because it will produce cash every year for five years. Project A should be purchased because it has a positive net present value (NPV). Neither project should be purchased, because neither has a positive net present value (NPV).
Project A and Project B are independent projects. Investment life of Project A is 4 years and investment life of Project B is 17 years. Project A's NPV is $375 and Project B's NPV is $1,743. EANPV of project A is $102 and EANPV of project B is $96. Which of the following decision is correct? O a. Select both projects because both have positive NPVs. O b. Select Project A because it has a shorter investment life O c. Select Project B because it has a longer investment life Od. Select Project A because it has a higher EANPV O e. Select Project B because it has a higher NPV
Read the question carefully and give me right solution according to the question.
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?
Ace Barker Inc. is evaluating two mutually exclusive projects: A and B. The initial investment for each project is $42,000. Project A will generate cash inflows equal to $15,600 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $70,000 at the end of the fifth year (i.e., no cash flows are generated in the first four years). The required rate of return of Ace Barker Inc. is 10 percent. Which project should Ace Barker Inc. purchase? O Project A should be purchased because it has a higher net present value (NPV) than Project B O Project A should be purchased because it will produce cash every year for five years. O Project B should be purchased because it has a positive net present value (NPV). Neither project should be purchased, because neither has a positive net present value (NPV).

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