BAG Corporation is considering the following two projects; namely Project X and Project Y: Project Y Cash Flow ($) Cash Flow ($) -100,000 30,000 Project X Year 0 -80,000 10,000 20,000 Year 1 Year 2 60,000 5,000 Year 3 60,000 Year 4 40,000 60,000 The discount rate for Project X is 9%, and the discount rate for Project Y is 10%. i. Calculate the payback period for each project. ii. Suppose Project X and Project Y are mutually exclusive (you can choose either one of Project X and Project Y, but cannot choose both), which project(s) should be accepted if BAG Corporation requires a payback period of 3 years? b) i. Calculate the profitability index for each project. ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the profitability index rule is considered? i. Calculate the net present value (NPV) for each project. c) ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the NPV rule is considered?

BAG Corporation is considering the following two projects; namely Project X and Project Y: Project Y Cash Flow ($) Cash Flow ($) -100,000 30,000 Project X Year 0 -80,000 10,000 20,000 Year 1 Year 2 60,000 5,000 Year 3 60,000 Year 4 40,000 60,000 The discount rate for Project X is 9%, and the discount rate for Project Y is 10%. i. Calculate the payback period for each project. ii. Suppose Project X and Project Y are mutually exclusive (you can choose either one of Project X and Project Y, but cannot choose both), which project(s) should be accepted if BAG Corporation requires a payback period of 3 years? b) i. Calculate the profitability index for each project. ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the profitability index rule is considered? i. Calculate the net present value (NPV) for each project. c) ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the NPV rule is considered?

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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Newland Company is considering investing in one of two projects – A or B. The initial cost and net cash inflows from each project are shown below. The discount rate for both projects is 18% per cent. Cash Flow Project A Project B $ $ Initial Cost 3,000,000 3,500,000 Net Cash Inflows Year 1 800,000 1,000,000 Year 2 800,000 1,000,000 Year 3 1,200,000 700,000 Year 4 1,200,000 800,000 Year 5 1,200,000 800,000 Year Factor 1 0.8475 2 0.7182 3 0.6086 4 0.5158 5 0.4371 Discount factors for the projects @18% per annum are as follows: Required: Calculate the payback period for each project and identify the project in which the company should invest, giving ONE reason for your choice. Calculate the Accounting Rate of Return on initial capital for each project
不 Data table You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): a. What are the IRRS of the two projects? b. If your discount rate is 4.6% what are the NPVS of the two projects? c. Why do IRR and NPV rank the two projects differently? a. What are the IRRS of the two projects? The IRR for project A is ☐ %. (Round to one decimal place.) (Click on the following icon in order to copy its contents into a spreadsheet.) Project A Year 0 - $49 Year 1 $24 B - $99 $18 Year 2 $21 $40 Print Done Year 3 Year 4 $19 $14 $50 $61
What is the NPV of the following project if the discount rate is 11%? Round to the nearest cent.Investment today: $-121,000; Cash flow in year 1: $66,000; Cash flow in year 2: $72,000; Cash flow in year 3: $66,000
You are choosing between two projects. The cash flows for the projects are given in the following table ( $ million ) : What are the IRRs of the two projects? If your discount rate is 5.4 % , what are the NPVs of the two projects? Why do IRR and NPV rank the two projects differently?
A project is expected to produce cash inflows of $5,000 for seven years. What is the maximum amount that can be spent on costs to initiate this project and still consider the project as acceptable, given an 11% discount rate? Select one: Oa. $15,884.15 Ob. $23,340.13 Oc. $25,900.63 O d. $23,560.98 Oe. $26,984.02
Duo Corporation is evaluating a project with the following cash flows. The company uses a discount rate of 10 percent and a reinvestment rate of 7 percent on all of its projects. Year 0 1 Cash Flow -$ 15,400 6,500 7,700 7,300 6,100 -3,500 Calculate the MIRR of the project using all three methods with these interest rates. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Discounting approach Reinvestment approach Combination approach % % %
Two projects, Alpha and Beta, are being considered using the payback method. Each has an initial cost of $100,000. The annual cash flows for each project are listed below. a) What is the pay back period in years for Alpha? (round to two decimal places) b) What is the pay back period in years for Beta? (round to two decimal places) Year Project Alpha Project Beta 1 25,000 15,000 2 25,000 25,000 3 25,000 45,000 4 25,000 30,000 5 25,000 20,000 25,000 15,000
Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project? Year0 ($11,368,000)1 $2,112,5892 $3,787,5523 $3,300,6504 $4,115,8995. $ 4,556,424 Round to two decimal places. For year 0 , its initial investment .
Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project? Year Project 0 ($11,368,000) 1 $ 2,127,589 2 $ 3,787,552 3 $ 3,125,650 4 $ 4,115,899 5 $ 4,556,424 Round to two decimal places.
Calculate the NPVs of both Project X and Project Y. Show the NPVs for each project. If the Projects are Independent which would you approve? If the Projects are Mutually Exclusive which would you approve?
Duo Corporation is evaluating a project with the following cash flows. The company uses a discount rate of 12 percent and a reinvestment rate of 9 percent on all of its projects. Year 0 Cash Flow -$ 16,100 1 2 12345 7,200 8,400 3 8,000 4 5 ces 6,800 -4,200 Calculate the MIRR of the project using all three methods with these interest rates. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Discounting approach Reinvestment approach Combination approach % % %
The following are the cash flows of 2 projects Year 0, Project A $340, Project B $340 Year 1, Project A $170, Project B $240 Year 2, Project A $170, Project B $240 Year 3, Project A $170, Project B $240 Year 4, Project A $170, Project B Calculate the NPV for both projects if the discount rate is 10% Project A - NPV? Project B - NPV? Suppose that you have can choose only one of these projects. Which would you choose? Project A, B, or niether?

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