hsl Chestnut Tree Farms has identified the following two mutually exclusive projects:Year Cash Flow (A)01234-$ 40,00011,30014,80013,7007,900Cash Flow (B)-$ 40,00017,40014,10012,9002,200Over what range of discount rates would you choose Project A?

The discount rate must be taken into account while deciding between Project A and Project B. The…

Answered: Chestnut Tree Farms has identified the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$56,000 -$56000 1 32,000 19,400 2 26,000 23,400 3 19,000 28,000 4 13,200 25,400 Over what range of Discount rates would you choose Project A? Project B? (Please list percentages rounded to 2 decimal places. Hint: The answer is not the same as the IRR.) Project A ____________% Project B ____________% At what discount rate would you be indifferent between these two projects? ____________%
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -24,063 -24,063 1 10,320 12,063 2 10,900 9,360 3 10,800 10,400 Sketch the NPV profiles for X and Y over a range of discount rates from zero to 25 percent (take 0%, 5%, 10%, 15%, 20%, 25%). Calculate the IRR of the projects. What is the relationship between NPV and IRR for your values? What is the crossover rate for these two projects and what it indicates for your values? Note - answer all the parts of the question.
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 1 2 3 -$20,000 8,850 9,100 8,800 2 Instruction: Sketch the NPV profiles for X and Y over a range of discount rates from 0% to 25%. What is the crossover rate for these two projects (when both projects have the same NPV)? Show your steps. -$20,000 10,100 7,800 8,700 A▾ B I = 18 1
Consider the cash flows for projects Alpha and Beta as follows: Project Alpha Beta Required: (a) (b) Year 0 cash flow -$250 - $150 Year 1 cash flow 0 Year 2 cash flow 400 200 0 Determine the discount rate that will make the NPV of the two projects equal. (Ignore negative discount rates.) Determine the range of discount rates in which project Alpha is preferred to project Beta.
(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive projects with the following projected cash flows: Project A Cash Flow Project B Cash Flow $(102,000) Year 0 1 2340 5 $(102,000) 35,000 35,000 35,000 35,000 35,000 0 0 0 0 230,000 (Click on the icon in order to copy its contents into a spreadsheet) If the appropriate discount rate on these projects is 12 percent, which would be chosen and why? The NPV of Project A is S. (Round to the nearest cent.)
Consider the following two mutually exclusive projects: Second part of the Question Year Cash Flow(X) Cash Flow(Y) 0 –$ 19,900 –$ 19,900 1 8,825 10,050 2 9,050 7,775 3 8,775 8,675 d) At which range of discount rates would you choose Project X over Project Y? e) At which range of discount rates would you choose Project Y over Project X?
Consider the following two mutually exclusive projects: If the discount rate is 10%, what are the NPV of Project A and the IRR of Project B? Cash Flows ($) Project C0 C1 C2 C3 A -90 +60 +50 0 B -100 0 0 +140 Multiple Choice Then NPV for project A is $5.9 and the IRR for project B is 11.9% Then NPV for project A is $8 and the IRR for project B is 9% Then NPV for project A is $20 and the IRR for project B is 11.9% Then NPV for project A is $5.9 and the IRR for project B is 11.9%
(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive projects with the following projected cash flows: Project A Cash Flow Project B Cash Flow Year S(105,000) S(105,000) 1 37,000 37,000 3 37,000 37,000 37,000 (Click on the icon e in order to copy its contents into a spreadsheet.) 4 5 215,000 If the appropriate discount rate on these projects is 11 percent, which would be chosen and why? The NPV of Project A is $ (Round to the nearest cent.)
A project has the following cash flows set out below. What is the profitability index of this project if the relevant discount rate is 2 percent? Enter your final answer to two decimal places. Year Cash flow 0 -1,745 1 537 2 2,066 3 3,912
1. Consider the following two mutually exclusive projects, X and Y, and their cash flows information, Project X Y (a) (b) Year 0 ($2,600) ($3,100) Year 1 $1,000 $ 900 Cash Flows Year 2 $1,300 $1,500 Year 3 $ 800 $1,100 Year 4 $ 400 $ 800 Assume that the appropriate discount rate is 14%, calculate the Payback Period, the Modified IRR (McKinsey's approach) AND the Profitability Index for Project Y. State clearly the key piece of information that you need in order to make the correct investment recommendation on the two projects according to the Payback Period method. Given that Project X's IRR is 15.16%, which project should be chosen according to the IRR method? Precisely explain how you should construct the incremental project and its cash flows numerically. Precisely explain your final selection between these two mutually exclusive projects according to the incremental project (IRR) analysis.
A project has the following cash flows: Year Cash Flows 0 -$ 10,900 1 3 4 1234 4,630 6,640 4,160 -1,800 Assuming the appropriate interest rate is 7 percent, what is the MIRR for this project using the discounting approach? Multiple Choice 9.94% 14.08% 12.55% 8.29% 10.76%
11. IRR rule (S5.3) Consider the following two mutually exclusive projects: Cash flows ($) Project A B Co -50 -50 C₁ +60 0 C₂ +60 0 0 +140 Page 142 a. Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and discount rate on the horizontal axis. b. What is the approximate IRR for each project? c. In what circumstances should the company accept project A? d. Calculate the NPV of the incremental investment (B – A) for discount rates of 0%, 10%, and 20%. Plot these on your graph. Show that the circumstances in which you would accept A are also those in which the IRR on the incremental investment is less than the opportunity cost of capital.

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Chestnut Tree Farms has identified the following two mutually exclusive projects: Year Cash Flow (A) 01234 -$ 40,000 11,300 14,800 13,700 7,900 Cash Flow (B) -$ 40,000 17,400 14,100 12,900 2,200 Over what range of discount rates would you choose Project A?