An investment has expected cash flows of -$200, $100, $220, $90 and $45 at the end of years 0 through 4, respectively. The required return is 8.5%. Estimate the investment's profitability index, and is this expected to create shareholder value (yes or no)? a. No; Pl needs to exceed zero b. Yes; Pl equals 1.91 c. Yes; Pl equals 0.91 d. No; Pl equals 1.91
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- What is the internal rate of return of an investment that requires a 10 percent minimum rate of return and has the following projected cash flows: Yr0 = -100, Yr1 = 25, Yr2 = 35, Yr3 = 45, Yr4 = 35, and Yr5 = 30? a. 19.33 percent b. 21.35 percent c. 20.05 percent d. 22.24 percentyou are considered an investment with the following cash flows. If the required rate of return for that investment is 13.5% should you accept it based solely on the internal rate of return Year. Cash flows 1. -$12000 2. $5500 3. $8000 4. -$1500 A. yes, because the IRR exceeds the required return B. yes, because the IRR is a positive rate of return C. No, because the IRR is less than the required return D. you cannot apply the IRR rule in this case because there are multiple IRRs.Which of the following comes closest to the net present value (NPV) of a project whose initial investment is $5 and which produces two cash flows: the first at the end of year 2 of $3 and the second at the end of year 4 of $7? The required rate of return is 13%? Select one: a. $1.84 b. $0 c. $1.64 d. $2.05 e. $2.26
- For investment A, the probability of the return being 20.0% is 0.5, 10.0% is 0.4, and -10.0% is 0.1 Compute the standard deviation for the investment with the given information. (Round your answer to one decimal place.) a. 85.00% b. 15.00% c. 34.00% d. 17.00% e. 9.00%What is the net present value of an investment that requires a 10 percent minimum rate of return and has the following projected cash flows: Yr0 = -100, Yr1 = 25, Yr2 = 35, Yr3 = 45, Yr4 = 35, and Yr5 = 30? a. 41 b. 28 c. 34 d. 35Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 Operating Income 8 9 10 $54,000 54,000 54,000 54,000 54,000 $270,000 0.943 Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% Net Cash Flow 0.909 0.826 0.751 $172,000 172,000 172,000 172,000 172,000 $860,000 12% 0.893 0.797 0.756 0.712 0.658 0.683 0.636 0.572 0.621 0.567 0.497 0.564 0.507 0.513 0.467 0.424 0.386 0.452 0.404 15% 0.361 0.322 0.870 0.432 0.376 0.327 0.284 0.247 Operating Income…
- 6.Calculate the project's Modified Internal Rate of Return (MIRR). What critical assumption does the MIRR make that differentiates it from the IRR? TIP : look for the definition of Modified Internal Rate of Return, and then do it in excel, easy !!! Year Net Cash flow Future Value of Net Cash flow 0 -$20.8 example 1 $4.5 $7.97 (n=6, i=10%)=fv(.1,6,,4.5) 2 $6.3 (n=5, i=10%) 3 $5.2 (n=4, i=10%) 4 $3.9 (n=3, i=10%) 5 $2.1 (n=2, i=10%) 6 $1.3 (n=1, i=10%) 7 $0.5 (n=0, i=10%) Sum = $XX.XX MIRR = ( in excel ) Rate ( 7,-20.8, xx.xx) 7.Where does the value of MIRR fall relative to the discount rate and IRR?Incremental cash flow is calculated as (cash flowB− cash flowA), where B represents the alternative with the larger initial investment. If the two cash flows were switched wherein B represents the one with the smaller initial investment, which alternative should be selected if the incremental rate of return is 20% and the MARR is 15%? Explain.You are considering an investment project with the cash flows of -300 (the initial cash flow), 800 (cash flow at year 1), -200 (cash flow at year 2). Given the discount rate of 10%, compute the Modified Internal Rate of Return (MIRR) using the discountingapproach. 19.72% 71.94% 37.52% 50.55%
- 7.16)Consider the investment projects given in Table P7.16. Assume that MARR = 12% in the following questions. (a) Compute i* for each investment. If the problem has more than one i*, identify all of them. (b) Compute IRR(true) for each project. (c) Compute the MIRR at MARR = 12%. (d) Determine the acceptability of each investment. TABLE P7.16 Net Cash Flow Project 1 Project 2 Project 3 -$1,000 -$1,000 -$1,000 1 2,500 1,960 1,400 2 -840 950 -200The five alternatives shown below are being evaluated by the rate of return method. Incremental ROR when compared with alternative B C D 27.3 9.4 35.3 25 E 1.5 38.5 24.4 Alt B D E Initial Invest, $ ROR vs DN,% 9.6 15.1 -25,000 -35,000 -40,000 -60,000 -75,000 13.4 25.4 20.2 A --- --- (d) Alt D 46.5 27.3 6.8 ... If the projects are mutually exclusive and the Minimum Attractive Rate of Return is 9.2% per year, the best alternative is: (a) Alt A (b) Alt B (c) Alt C (e) Alt ECalculate the HPR of the following investment, entered as a percentage (Example: if your answer is 14.5%, enter 14.5 and not 0.145) Period Cashflow 0 -14100 1 3300 2 3300 3 3100 4 2800