Coffer Company is analyzing two potential investments.Project XCost of machineNet cash flow:Year 1Year 2$ 85,470Project Y$ 65,00033,00033,0003,00030,000Year 3Year 433,0000• 30,00025,000If the company is using the payback period méthod, and it requires a payback period of three years or less, which project(s) should be selected?Multiple ChoiceProject Y.Project X.Both X and Y are acceptable projects.Neither X nor Y is an acceptable project.

Step 1:Calculation of payback period:YearProject XProject YCash flowCumulative cash flowCash…

Answered: Coffer Company is analyzing two…

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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Using payback to make capital investment decisions Carter Company is considering three investment opportunities with the following payback periods: Use the decision rule for payback to rank the projects from most desirable to least desirable, all else being equal.
You have 3 projects with the following cash flows: Year 1 Project 1 Project 2 Project 3 - $150 $18 $42 $61 $79 - 6,494 - 245 - 826 7,005 21 40 61 80 For which of these projects is the IRR rule reliable? Put another way, for which of these projects would you feel comfortable that the IRR decision rule would agree with the NPV decision rule? (Choose the most appropriate answer) O A. Project 1 O B. Project 1 & Project 3 OC. There is not enough information available to answer this question. O D. Project 3 O E. The IRR rule should agree with the NPV rule for all of the above projects. O F. Project 2
Average rate of return The following data are accumulated by Patterson Inc. in evaluating two competing capital investment proposals: Amount of investment Useful life Feedback Estimated residual value $6,760 $6,600 Estimated total income over the useful life Determine the expected average rate of return for each project. Round your answers to one decimal place. Project C Project T 4.5 X % Project C Project T $52,000 $24,000 4 years 8 X % years 0 0
Consider the following two projects: Cash flows Project A Project B C0�0 −$ 240 −$ 240 C1�1 100 123 C2�2 100 123 C3�3 100 123 C4�4 100 a. If the opportunity cost of capital is 8%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 8%. c. Which one would you choose if the cost of capital is 16%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h. If the opportunity cost of capital is 8%, what is the profitability index for each project? i. Is the project with the highest profitability index also the one with the highest NPV? j. Which measure should you use to choose between the projects?
Problem 1. What is the estimated rate of return for n this project
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Calculate internal Rate of Return of the project. Should the project be accepted? If reinvestment rate assumption of IRR is changed to cost of capital 11% , what should the modified rate of return ( MIRR)?
Calculations to determine which – if any – additional investment opportunities should be undertaken. 1. If the projects are divisible 2. If the projects are not divisible .
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"Consider the following two mutually-exclusive altematives: Project Alternatives n Project A1 Cash Flows Project A2 Cash Flows 0-514,000 1+$4,000 - $17,000 $21,000 2- 54,000 3-$12,000 If MARR=15% and assuming indefinite required service and repeatability, use the incremental NPV and IRR analyses in parts (a) and (b) of the problem, respectively, to choose the project in part (c). Please note that project alternatives A7 and A2 have different lives, namely three years for A1 and one year for A2. The alternatives should be compared over the same period, so project A2 will have to be repeated twice." axThe Net Present Value of the incremental investment is: YbrThe rternal Rate of Retun of the incremental investment is: (oWe shoulo choose project alternative: Note: Please enrer your onswvers to two decimal places. If using the interest factor method, apply the value of the factor os presented in the table or spreocsheet (with all four decimal places).

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