Choosing between two projects with acceptable payback periods Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table: . a. Determine the payback period of each project. b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in? a. The payback period of project A is years. (Round to two decimal places.) The payback period of project B is years. (Round to two decimal places.) b. Because they are mutually exclusive, Shell must choose one. Using the payback period, which project should the company invest in? (Select the best answer below.) Project A would be preferred over project B because the larger cash flows are in the later years of the project. Project B would be preferred over project A because the larger cash flows are in the early years of the project.

Choosing between two projects with acceptable payback periods Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table: . a. Determine the payback period of each project. b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in? a. The payback period of project A is years. (Round to two decimal places.) The payback period of project B is years. (Round to two decimal places.) b. Because they are mutually exclusive, Shell must choose one. Using the payback period, which project should the company invest in? (Select the best answer below.) Project A would be preferred over project B because the larger cash flows are in the later years of the project. Project B would be preferred over project A because the larger cash flows are in the early years of the project.

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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Kara, Incorporated, imposes a payback cutoff of three years for its international investment projects. Assume the company has the following two projects available. Year Cash Flow (A) 0 -$56,000 1 2 3 4 22,500 29,600 24,500 10,500 Cash Flow (B) -$ 101,000 a. Project A Project B b. Project acceptance 24,500 29,500 29,500 239,000 a. What is the payback period for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. Which, if either, of the projects should the company accept? years years
Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of $11,500 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,900 and $7,700 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,400 at the end of each of the next 4 years. Each project has a WACC of 8%. Using the replacement chain approach, what is the NPV of the most profitable project? Do not round the intermediate calculations and round the final answer to the nearest whole number. a. $3,399 b. $3,925 c. $3,073 d. $2,768 e. $3,620
Portland Gaming, Inc. uses payback to evaluate potential projects and has a required payback period of four years for all projects. Currently, Portland is evaluating two independent projects. Project A has an expected payback period of 3.6 years and a net present value of $8,400. Project B has an expected payback period of 4.2 years with a net present value of $26,800. Which projects should be accepted based on the payback decision rule? Group of answer choices Project A only Project B only Both A and B Neither A nor B Answer cannot be determined based on the information given.
Please answer very fast then i ll upvote. XYZ Limited is considering two projects. Each requires an immediate cash outlay: $10,000 for A, $9,000 for B. Project A has a life of four years, project B five years; neither will have any salvage value at the end of its life. For tax purposes, each would be depreciated by the straight-line method, project A at 30 percent, project B at 24 percent. The company’s tax rate is 40 percent, and its required rate of return after tax is 11 percent. Net cash flows before taxes have been projected as follows. Year 1 2 3 4 5 Project A 3200 3200 4000 4100 Project B 4000 4000 1900 1800 1800 a)calculate the net cash flows after tax for each project. (Assume that XYZ Limited has a substantial taxable income so that,where a project has a negative taxable income in a particular year, this will give rise to a tax saving by the firm.) b) Compute the payback for each investment. c) Compute the average rate of return for each investment. d) Compute…
Lithium Inc. is considering two mutually exclusive projects, A & B. project cost $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three and $45,000 in year four. Lithium Inc.’s required rate of return for these projects is 10%. The modified internal rate of return for project A is? A. 29.63% B. 19.19% C. 26.89% D. 24.18%
Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial after-tax investment of $11,000 and are typical average-risk projects for the firm. Project A has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,000 at the end of Years 1 and 2, respectively. Project B has an expected life of 4 years with after-tax cash inflows of $5,000 at the end of each of the next 4 years. The firm's WACC is 10%. a. If the projects cannot be repeated, which project should be selected if Crockett uses NPV as its criterion for project selection? Project should be selected. b. Assume that the projects can be repeated and that there are no anticipated changes in the cash flows. Use the replacement chain analysis to determine the NP of the project selected. Do not round intermediate calculations. Round your answer to the nearest cent. Since Project 's extended NPV = $ , it should be selected over Project A ~ with an…
An electronic circuit board manufacturer is considering six mutually exclusive cost-reduction projects for its PC-board manufacturing plant. All have lives of 10 years and zero salvage value. The required investment, the estimated after-tax reduction in annual disbursements, and the gross rate of return arc given for each alternative in the following table: llte rate of return on incremental investments is given for each project as follows: Which project would you select according to the rate of return on incremental investment if it is stated that the MARR is 15%?
An oil drilling company must choose between two mutually exclusive extraction projects, and each costs $12 million. Cash inflows include an annuity of $ 4million for the next 4 years for project A Cash inflows for project B consist of $3 million for 7 years WACC for both projects is 8%a) Estimate the cash flows and select or reject the project based on capitalbudgeting (NPV IRR and payback period )
4. Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of S9,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,200 and $7,100 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,600 at the end of each of the next 4 years. Each project has a WACC of 8%. Using the replacement chain approach, what is the NPV of the most profitable project? Do not round the intermediate calculations and round the final answer to the nearest whole number. a. 5,113 b. 4,989 c. 5,425 d. 5,924
Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $14,200 at t = o. Project S has an expected life of 2 years with inflows of $7,400 and $12,800 at the end of Years 1 and 2, respectively. In addition, Project S can be repeated at the end of Year 2 with no changes in its cash: L has an expected life of 4 years with after-tax cash inflows $6,900 at the end of each of the next 4 years. Each project has a WACC of 10%. What is the equival annuity of the most profitable project? Do not round your intermediate calculations. O a $2,420.31 O b. $1,789.52 c. $2,533.33 Od. $2,827.56 Oe $3,110.31
Chingos and Daughters Construction is considering three investment proposals: A, B, and C. Proposals A and B are mutually exclusive, and Proposal C is contingent on proposal B. The cash flow data for the investments over a 10-year planning horizon are given below. The company has a budget limit of $1 million for investments of the type being considered currently. MARR = 15%. Determine which alternative should be selected using the internal rate of return method.
Blossom Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $450,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $73,500. Project B will cost $298,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $50,200. A discount rate of 9% is appropriate for both projects. Click here to view PV table. Compute the net present value and profitability index of each project. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125 and profitability index answers to 2 decimal places, e.g. 15.25. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value - Project A Profitability index - Project A Net present value - Project B…

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