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 for the project is 11%. 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.

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 for the project is 11%. 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.

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 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 statistic for the project are 2 and 3 years, respectively. Time 0 1 2 3 4 5 6 Cash Flow -1,040 140 460 660 660 260 660 Use the NPV decision rule to evaluate this project; should it be accepted or rejected?
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 for the project is 10%. 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. What is the payback period for the new project at Risky Business? years (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Initial investment at start of project: $11,300,000 Cash flow at end of year one: $2,034,000 Cash flow at end of years two through six: $2,260,000 each year Cash flow at end of years seven through nine: $2,237,400 each year Cash flow at end of year ten: $1,721,077 HERY BU De DULU LUDIV Print (...) Diana - X Clear all Check answer
You are the head of the project selection team at SIMSOX. Your team is considering three different projects. Based on past history. SIMSOX expects at least a rate of return of 23 percent. Given the following information for each project, which one should be SIMSOX's first priority? Should SIMSOX fund any of the other projects? (Use the NPV function in Excel to solve this problem. Negative amount should be indicated by a minus sign.) Project: Dust Devils Year Investment Revenue Stream 550, 000 1 35,000 275,000 375,000 2 Project: Ospry Year Investment Revenue Stream 300,000 1 30,000 2 30,000 30,000 75,000 Project: Voyagers Year Investment Revenue Stream 85,000 1 25,000 25,000 60,000 2 3 4 55,000 145,000 The NPV for Dust Devils is The NPV for Ospry is The NPV for Voyagers is How many projects should be funded? undefined
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 10 percent and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time Cash Flow Multiple Choice $-24013, reject -1,000 Use the NPV decision rule to evaluate this project; should it be accepted or rejected? $835 86, accept $759 87, accept $1,835.86 accept 2 400 200 3 600 4 600 5 200 6 600
A project has initial costs of $3,000 and subsequent cash inflows of $1350,275,875 and 1525 . The company's 10% cost of capital is an appropriate discount rate for this average risk project. Calculate the following: NPV IRR Profitability Index Please number/label each of your answers as shown above. Be sure to show your TVM function calculator inputs, and four decimal places.
Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $3,225,000. The project's expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 -125,000 Year 3 500,000 Year 4 400,000 If the company's WACC is 8% and the project has the same risk as the firm's average project, what is the project's modified internal rate of return (MIRR)? Should you accept or reject this project?
You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): a. What are the IRRs of the two projects? b. If your discount rate is 4.7%, what are the NPVs of the two projects? c. Why do IRR and NPV rank the two projects differently? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 Project A Year 1 - -$51 $27 B - $101 $22 Year 2 $21 $42 Year 3 $20 Year 4 $13 $51 $59 - ☑
1. Comparing all methods. Given the following after-tax cash flow on a new toy for Tyler's Toys, find the project's payback period, NPV, and IRR. The appropriate discount rate for the project is 14%. If the cutoff period is 6 years for major projects, determine whether management will accept or reject the project under the three different decision models. (Click on the following icon in order to copy its contents into a spreadsheet.) Initial cash outflow: $11,700,000 Years one through four cash inflow: $2,925,000 each year Year five cash outflow: $1,170,000 Years six through eight cash inflow: $503,000 each year What is the payback period for the new toy at Tyler's Toys? years (Round to two decimal places.) Under the payback period, this project would be (1) What is the NPV for the new toy at Tyler's Toys? $ (Round to the nearest cent.) Under the NPV rule, this project would be (2) What is the IRR for the new toy at Tyler's Toys? % (Round to two decimal places.) Under the IRR rule,…
What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's weighted average cost of capital (WACC) is 9%, the project's NPV (rounded to the nearest dollar) is: $355,048 $287,420 $405,769 $338,141 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not take the time value of money into account. The payback period is calculated using net income instead of cash flows. The payback period does not take the project's entire life into account.
Project Analysis. Assume that you are evaluating the following three mutually exclusive projects: A. Complete the following analyses. (For the last two lines, Terminal Value, please write in the dollar amount of the terminal value.) B. Compare and explain the conflicting rankings of the NPVs and TRRs versus the IRRs. C. Using different discount rates, is it possible to get different rankings within the NPV calculation? Why or why not? D. If 10 percent is the required return, which project is preferred? E. Which is the fairer representation of these two projects, TRR or IRR? Why?
Your firm is considering a project that will cost $4.719 million up front, generate cash flows of $3.55 million per year for 3 years, and then have a cleanup and shutdown cost of $5.96 million in the fourth year. a. How many IRRS does this project have? b. Create an NPV profile for this project (plot the NPV as a function of the discount rate-see the appendix). (NOTE: students will solve this question part using Excel only. A student response is not included in MyFinanceLab). c. Given a cost of capital of 9.9% should this project be accepted? a. The project has IRRS. (Select from the drop-down menu.) 2 3 4
Moses Manufacturing is attempting to select the best of three mutually exclusive projects, X, Y, and Z. Although all the projects have 5-year lives, they possess differing degrees of risk. Project X is in class V, the highest-risk class; project Y is in class II, the below-average-risk class; and project Z is in class III, the average-risk class. The basic cash flow data for each project and the risk classes and risk-adjusted discount rates (RADRs) used by the firm are shown in the following tables. Project X Project Y Project Z Initial investment (CF0) $179,000 $235,000 $312,000 Year (t ) Cash inflows (CFt) 1 $80,000 $56,000 $85,000 2 66,000 68,000 85,000 3 62,000 73,000 85,000 4 55,000 84,000 85,000 5 65,000 96,000 85,000 Risk Classes and RADRs Risk Class Description Risk adjusted…

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