BURNER Co. is considering two mutually exclusive projects, Project A and Project B. The projects have the following cash flows: Project A Project B -100,000 -190,000 30,000 30,000 35,000 35,000 40,000 100,000 40,000 100,000 The two projects are equally risky. At what weighted average cost of capital would the two projects have the same net present value (NPV)?

BURNER Co. is considering two mutually exclusive projects, Project A and Project B. The projects have the following cash flows: Project A Project B -100,000 -190,000 30,000 30,000 35,000 35,000 40,000 100,000 40,000 100,000 The two projects are equally risky. At what weighted average cost of capital would the two projects have the same net present value (NPV)?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

See similar textbooks

Related questions

Q: ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC…

A: Project A cash Flow:Year 0 = -$12,500. Year1 = $8,000Year 2 = $14,000Year 3= $13,000The firm uses a…

Q: The management of NUBD Co. is considering three investment projects-W, X, and Y. Project W would…

A: Profitability index (Present Value / Initial Investment)

Q: Galaxy Inc. is considering Projects S and L, whose cash flows are shown below. These projects are…

A: We have a typical capital budgeting projects. We have to see how much is the value lost if one is…

Q: Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis…

A: The objective of the question is to calculate the difference in the net present value (NPV) of two…

Q: XYZ Corporation evaluates two projects. Projects x and y; the below table shows their cash flows.…

A: NPV means PV of net benefit which will be arises in future. It can be computed simply by taking…

Q: Flint Fruits is considering two equally risky, mutually exclusive projects, Projects A and B, that…

A: The IRR of the cash flow after finding the difference between the cash flows of two mutually…

Q: Cummings Products is considering two mutually exclusive investments whose expected net cash flows…

A: NPV profile It is a graph where NPVs are plotted on Y-axis and discount rates are plotted on x-axis.…

Q: The two projects are equally risky. At what weighted average cost of capital would be the two…

A: Net Present Value: It is the present value today of future annual cash flows and the initial cost of…

Q: Wizard Inc. has to choose between two mutually exclusive projects. If it chooses project A, Wizard…

A: For Project A the same investment can be made again in the end of year 3 at same value.Hence the…

Q: $16,449

A: Net present value shows the difference between the cash inflow and cash outflows in a particular…

Q: Sandia corporation is considering two independent projects. For our purposes, we will call them…

A: NPV stands for Net Present Value. It is a financial metric used to assess the profitability and…

Q: Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis…

A: Net Present Value (NPV) is the technique used to discount the cash flows generated over the period…

Q: 2. Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are…

A: Net present value (NPV) is one of two standard financial techniques used in discounted cash flow…

Q: ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC…

A: The objective of the question is to calculate the difference between the net present values (NPV) of…

Q: approach, what will be the difference between the net present value (NPV) of project A and project…

A: Net present value is employed to assess an investment's profitability. It is determined by deducting…

Q: $17,719 $11,517 $12,403 $15,061 $10,631 Allied Biscuit Co. is considering a four-year…

A: Under replacement chain analysis, we are going to repeat project A's cash flows one more time at the…

Q: wn in the following table attached. The cost of capital is 14% a. Calculate the IRR for each of the…

A: Internal rate of return or IRR is the rate at which present value of cash inflows is equal to…

Q: Projects A and B are equally risky, mutually exclusive, and have normal 15%, while Project B's IRR…

A: The question is based on the concept of capital budgeting and different techniques of capital…

Q: Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are…

A: When the lives of the assets are different, we use a replacement chain approach to make the lives of…

Q: Using the net present value method, the present value of cash inflows for Project A is P44,000 and…

A: Present value (PV) of cash inflows Divided:- Initial investment = Present value of index

Q: 4. Unequal project lives ABC Telecom has to choose between two mutually exclusive projects. If it…

A: The objective of the question is to calculate the difference in the net present value (NPV) of two…

Q: You are considering an investment in two normal cash flow and mutually exclusive projects. Project…

A: Internal Rate of return is the rate at which Net present value of the project is zero. Crossover…

Q: The management of NUBD Co. is considering three investment projects-W, X, and Y. Project W would…

A: Rank of the Projects according to the profitability index, from most profitable to least profitable…

Q: Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy…

A: NPV can be calculated by following function in excel=NPV(rate,value1,[value2],…) + Initial…

Q: Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are…

A: Capital budgeting provides numerous benefits to companies, including efficient resource allocation,…

Q: Newtown Corp. has to choose between two mutually exclusive projects. If it chooses project A,…

A: The collection of all tools used to assess prospective investments are called capital budgeting…

Q: Allied Biscuit Co. has to choose between two mutually exclusive projects. If it chooses project A,…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

Q: Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are…

A: Here 2 projects S and L are mutually exclusive and equally risky, one of them with high MIRR will be…

Q: XYZ Corporation evaluates two projects. Projects x and y; the below table shows their cash flows.…

A: Dear Student, as per Bartleby's answering guideline we can answer only the first three sub-parts if…

Q: Robinson Robotics is considering two mutually exclusive projects, Project A and Project B. The…

A: NPV (Net Present Value) is a financial metric used to evaluate the profitability of an investment by…

Q: Ryan Corporation is considering three investment projects: X, Y, and Z. Project X would require an…

A: The profitability index is a measure used to evaluate the attractiveness of an investment project.…

Q: Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are…

A: Here, YearCash flows for project SCash flows for project L0 $ -1,200.00 $ -2,400.001 $ 405.00 $…

Q: Pound Industries is attempting to select the best of three mutually exclusive projects. The initial…

Q: Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis…

A: The collection of all tools used to assess prospective investments are called capital budgeting…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

BURNER Co. is considering two mutually exclusive projects, Project A and Project B. The projects have the following cash flows:

Project A Project B

-100,000 -190,000

30,000 30,000

35,000 35,000

40,000 100,000

The two projects are equally risky. At what weighted average cost of capital would the two projects have the same net present value (NPV)?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 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

Flint Fruits is considering two equally risky, mutually exclusive projects, Projects A and B, that have the following cash flows: Year Project A Project B 0 -$100,000 -$97,000 1 60,000 30,000 2 25,000 15,000 3 60,000 80,000 4 40,000 65,000 What is the cost of capital that would make the two projects having the same NPV values?(Please show work) Discuss why this cost of capital that would make two projects have the same NPV value would influence your decision to take project A or project B based on NPV versus IRR method? (Please show work)
Burner Co. is considering two manually exclusive projects, Project A and Project B. the projects have the following cash flows: Project A Project B Year Cashflow Cashflow 0 -100,000 -190,000 1 30,000 30,000 2 35,000 35,000 3…
Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis 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 13%? Cash Flow Project A Project B Year 0: –$17,500 Year 0: –$45,000 Year 1: 10,000 Year 1: 10,000 Year 2: 16,000 Year 2: 17,000 Year 3: 15,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 $9,656 $14,163 $10,944 $12,875 $10,300
Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis 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 10%? Cash Flow Project A Project B Year 0: –$12,500 Year 0: –$45,000 Year 1: 8,000 Year 1: 10,000 Year 2: 14,000 Year 2: 17,000 Year 3: 13,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 $11,776 $9,421 $7,066 $10,598 $7,654 Praxis Corp. is considering a three-year project that has a weighted average cost of capital of 11%…
Allied Biscuit Co. has to choose between two mutually exclusive projects. If it chooses project A, Allied Biscuit Co. 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: –$17,500 Year 0: –$45,000 Year 1: 10,000 Year 1: 10,000 Year 2: 16,000 Year 2: 17,000 Year 3: 15,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 A. $8,754 B. $12,506 C. $7,504 D. $10,630 E. $11,255 Allied Biscuit Co. is considering a three-year project that has a…
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…
Wizard Inc. has to choose between two mutually exclusive projects. If it chooses project A, Wizard Inc. 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%? Project A Year 0: Year 1: Year 2: Year 3: Cash Flow O $17,672 O $12,049 -$12,500 8,000 14,000 13,000 O $13,655 O $16,065 O $10,442 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 i
Using the net present value method, the present value of cash inflows for Project A is P44,000 and the present value of cash inflows of Project B is P24,000. If Project A and Project B require initial investments of P40,000 and P20,000, respectively, and have the same useful life, what is the project that should be accepted assuming the projects are mutually exclusive projects?
Globo-Dharma Co. has to choose between two mutually exclusive projects. If it chooses project A, Globo-Dharma Co. 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 14%? Project A Year 0: Year 1: Year 2: Year 3: $17,143 O $22,857 $14,857 $18,286 O $20,571 $10,388 Cash Flow O $8,657 O $7,791 $9,090 O $9,523 -$10,000 7,000 15,000 14000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: Globo-Dharma Co. is considering a five-year project that has a weighted average cost of capital of 13% and a NPV of $30,450. Globo-Dharma Co. can replicate this project indefinitely. What is the…
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: $11,217 $14,422 $13,620 $17,626 $16,024 $35,090 $28,987 $30,513 $36,616 Cash Flow $38,141 -$12,500 8,000 14,000 13,000 ABC Telecom is considering a four-year project that has a weighted average cost of capital of 13% and a NPV of $90,760. 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:…
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 Project B Year 0: –$20,000 Year 0: –$45,000 Year 1: 11,000 Year 1: 9,000 Year 2: 17,000 Year 2: 16,000 Year 3: 16,000 Year 3: 15,000 Year 4: 14,000 Year 5: 13,000 Year 6: 12,000 $11,514 $16,449 $13,982 $10,692 $18,094 ABC Telecom is considering a five-year project that has a weighted average cost of capital of 14%…
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…