(Calculating IRR and NPV) (Related to Checkpoint 11.1 on page 367 and Checkpoint 11.4 on page 376) The cash flows for three independent projects are as follows: Year Project A Project B Project C 0 (initial investment) $(50,000) $ 10,000 $(100,000) $(450,000) $ 25,000 $ 200,000 2 15,000 25,000 200,000 3 20,000 25,000 200,000 4 25,000 25,000 5 30,000 25,000 a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 10 percent, which project or projects would you want to undertake? c. What is the NPV of each of the projects where the appropriate discount rate is 10 percent? 20 percent?

(Calculating IRR and NPV) (Related to Checkpoint 11.1 on page 367 and Checkpoint 11.4 on page 376) The cash flows for three independent projects are as follows: Year Project A Project B Project C 0 (initial investment) $(50,000) $ 10,000 $(100,000) $(450,000) $ 25,000 $ 200,000 2 15,000 25,000 200,000 3 20,000 25,000 200,000 4 25,000 25,000 5 30,000 25,000 a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 10 percent, which project or projects would you want to undertake? c. What is the NPV of each of the projects where the appropriate discount rate is 10 percent? 20 percent?

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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Comparison of NPV and IRR: The Case of Mutually Exclusive Projects Estimated cashflow data for each of two projects, A and B, and the discount rate, r, to be used for the analysis ofcapital investment projects are given below:[LO 12-9][LO 12-9]Year Project A Project B0 ($10,000) ($10,000)1 $7,000 $2,000 2 $3,000 $3,000 3 $2,000 $4,000 4 $2,000 $6,000 Discount rate, r = 10.0%.Required 1. In a capital budgeting context, explain the difference between independent and mutually exclusiveinvestments. Give an example of each type of investment project. What is the primary implication ofthis distinction for the analysis of capital investment projects?2. Use the built-in functions in Excel to calculate the IRR and the NPV for each investment project. Whichof these projects—if either—should be accepted if they are considered independent projects? RoundIRRs to 2 decimal places and NPVs to the nearest whole dollar. 3. An NPV profile for a project is a plot of the project’s NPV as a function of the…
Calculate the IRR of a project requiring an investment outlay of $ 10,000 resulting in cash inflows of $2,000 at the end of Year 1, $5,000 at the end of Year 2, and $8,000 at the end of year 3. a. 19.79% b. 18.79% c. 20.79% d. 22.79%
Calculate cash flows.
The followings are cash flows of two mutually exclusive projects: Projects I and II. Project I: Year 0: -200,000, Year 1: 50,000, Year 2: 100,000, Year 3: 150,000, Year 4: 40,000 Project II: Year 0: -100,000, Year 1: 40,000, Year 2: 90,000, Year 3: 30,000, Year 4: 60,000 The cost of capital for the company is the same as what you have estimated in the previous question (use a round number, round to the closet integer). Which project should the company select based on the following criteria? Cost of Capital = 10.9% a. Payback period (The critical payback period is 2.5 years) Payback(Project 1)= Payback(Project 2)= Which one should you choose? (Better) b. Net present value NPV(Project 1)= NPV(Project 2)= Which one should you choose? (Better) c. Internal Rate of Return IRR(Project 1)= IRR(Project 2)= Which one should you choose? (Better) d. Profitability Index PI(Project 1)= PI(Project 2)= Which one should you choose? (Better)
Year 0 ($100,000)-Project Outlay (The bracket indicates a negative figure) Year 1 Year 2 Year 3 Year 4 Year 5 $ 18,000 $ 18,000 $18,000 $18,000 $ 18,000 Assume that cash flows are reinvested at the rate of 10%, compounded annually. Calculate the Modified Internal Rate of Return (MIRR) on this project. (Note that n=5) a 18.96% b 18% c 15.98% d 19.2%
A company is evaluating three possible investments. The following information is provided by the company: Project A Project B Project C Investment $238,000 $54,000 $238,000 Residual value 0 30,000 40,000 Net cash inflows: Year 1 70,000 30,000 100,000 Year 2 70,000 21,000 70,000 Year 3 70,000 17,000 80,000 Year 4 70,000 14,000 40,000 Year 5 70,000 0 0 What is the payback period for Project A? (Assume that the company uses the straight−line depreciation method.) (Round your answer to two decimal places.) A. 1.8 years B. 2.4 years C. 5.00 years D. 3.4 years
Meman
First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $686,053 $516,654 $295,458 Annual net cash flows: Year 1 411,000 288,000 177,000 Year 2 382,000 259,000 122,000 Year 3 349,000 230,000 89,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each project. Use the…
Vishu
Blinding Light Company has a project available with the following cash flows: Year Cash Flow 0 12345 2 3 4 5 -$ 34,110 8,150 9,810 13,980 15,850 10,700 What is the project's IRR?
You are given the following cash flow information for Project A TV Inflows Year 0 PV Outflows -$150,000.00 1 Project A -$150,000.00 $80,000.00 -$25,000.00 $50,000.00 2 $80,000.00 -$30,000.00 $75,000.00 Totals 3 4 5 6 O 19.33% $75,000.00 Now assume that the project's cost of capital is 16.0 percent, but that its true reinvestment rate is 24.0 percent. Given this information, determine the project's modified internal rate of return (MIRR). Ⓒ 18.56% 5 pts
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