Comparing all methods. Risky Business is looking at a project with the following estimated cash flow: . Risky Business wants to know the payback period, NPV, IRR, MIRR, and Pl of this project. The appropriate discount rate or the project is 9%. If the cutoff period is 6 years for major projects, determine whether the management at Risky Business will accept or reject the project under the five different decision models. Vhat is the payback period for the new project at Risky Business? years (Round to two decimal places.)

Comparing all methods. Risky Business is looking at a project with the following estimated cash flow: . Risky Business wants to know the payback period, NPV, IRR, MIRR, and Pl of this project. The appropriate discount rate or the project is 9%. If the cutoff period is 6 years for major projects, determine whether the management at Risky Business will accept or reject the project under the five different decision models. Vhat is the payback period for the new project at Risky Business? years (Round to two decimal places.)

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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Suppose that there are two alternatives as project I with initial cost of 50.000 TL. and project II with initial cost of 75.000 TL. You have MARR of 10%. If the incremental rate of return delta i* ( II - I )=4% then which project should you select?
If the company uses a project cost of capital of 13%, what will be the expected net present value (NPV) of this project? (Mote: Do not round Intermediate calculations and round your answer to the nearest whole dollar.) -$7,874 Ⓒ-$6,630 -$8,288 O-$9,531 St. Margaret Beer Co. has the option to delay starting this project for one year so that analysts can gather more information about whether demand will be strong or weak. If the company chooses to delay the project, it will have to give up a year of cash flows, because the project will then be only a two-year project. However, the company will know for certain if the market demand will be strong or weak before deciding to invest in it. What will be the expected NPV If St. Margaret Beer Co. delays starting the project? (Note: Do not round Intermediate calculations and round your answer to the nearest whole dollar.) $1,880 Ⓒ$1,410 What is the value of St. Margaret Beer Co's option to delay the start of the project? (Note: Do not round…
Rockmont Recreation Inc. is considering a project that has the following cash flow and WACC data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC, in which case it will be rejected. WACC-10%, Cash Flow Year 0 -1000, Cash Flow Year 1 = $450, Cash Flow Year 2 = $440, Cash Flow Year 3 = $430. 15.41% 15.55% 15.76% 16.13%
There are two types of projects in the market: A (safer) and B (riskier). At time 1, the payoff of A will be either $500 (probability 0.75) or $300 (probability 0.25). The appropriate discount rate for project A is 12%. The minimum price A can accept is $350. The payoff of B will be either $800 (probability 0.2) or $100 (probability 0.8). The appropriate discount rate for project B is 20%. In this simple economy, there are 90% chance that the project will be A. Evaluate the funding situation, i.e., which type of project will be funded and the price, based on the following scenarios: If a bank can tell whether the entrepreneur is endowed with project A or B, but cannot stop A from switching to B after A has receive the fund. What is the maximum face value of loan that the bank can lend to A without incur any monitoring costs, i.e., A will not have incentive to switch to B given this incentive compatible amount of loan and limited liability.
Consider two investment projects, both of which require an upfront investment of $10 million and pay a constant positive amount each year for the next 12 years. Under what conditions can you rank these projects by comparing their IRRS? (Select the best choice below.) A. Ranking by IRR will work in this case so long as the projects' cash flows do not decrease from year to year. B. Ranking by IRR will work in this case so long as the projects' cash flows do not increase from year to year. C. Ranking by IRR will work in this case so long as the projects have the same risk. D. There are no conditions under which you can use the IRR to rank projects.
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: Cash flow: 0 1 2 -$241,000 $66,400 $84,600 Payback Use the payback decision rule to evaluate this project. Note: Round your answer to 2 decimal places. years 4 3 $141,600 $122,600 Should the project be accepted or rejected? (Click to select) 5 $81,800
RiverRocks, Inc., is considering a project with the following projected free cash flows: Year 0 Cash Flow - $50.8 (in millions) O A. Cash Flows (millions) - $50.8 The timeline for the project's cash flows is: (Select the best choice below.) Year B. Cash Flows (millions) The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 12.8%. Should it take on this project? Why or why not? Year O C. Cash Flows (millions) Year D. Cash Flows (millions) Year 0 - $50.8 0 $50.8 0 $50.8 0 - $10.8 + 1 $10.8 1 - $10.8 1 1 $10.8 $10.8 1 - $20.7 2 $20.7 2 - $20.7 2 2 $20.7 $20.7 2 - $19.5 3 $19.5 + 3 - $19.5 3 $19.5 3 $19.5 3 - $15.4 4 $15.4 4 - $15.4 4 $15.4 4 $15.4 4
Marites Company is considering a 5-year project. The company plans to invest P900,000 now and it forecasts cash flows for each year of P270,000. The company requires that investments yield a discount rate of at least 14%. Calculate the internal rate of return to determine whether it should accept this project. Group of answer choices A. The project should be rejected because it will not earn exactly 14%. B. The project should be rejected because it will earn less than 14%. C. The project should be accepted because it will earn more than 10%. D. The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected. E. The project should be accepted because it will earn more than 14%.
Warr Company is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative, in both cases it will be rejected. Year 0 1 2 3 4 5 CF -1,415 400 400 400 400 400 Need to know how to compute using CF function on calculator.
Office of Business Administration tells you that Villa Apartment has a project to expand the current operations and the estimated internal rate of return is 12.2%. The Villa Apartment's WACC is 11.8%. Based on all of these, you can safely conclude the: O appropriate discount rate for the project is between 11.8% and 12.2%. O expansion should be undertaken as it has a positive net present value. O project has slightly more risk than the firm's current operations. O project will have a lower debt-equity ratio than the firm's current operations.
Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $400,000 and has a present value of cash flows of $1,100,000. Project 2 requires an initial investment of $4,000,000 and has a present value of cash flows of $6,000,000. 1. Compute the profitability index for each project. 2. Based on the profitability index, which project should the company prefer? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the profitability index for each project. Project 1 Project 2 Choose Numerator: Profitability Index T 7 Choose Denominator: 4 of 5 180 # Next > G O

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