**Comparing all methods.** Risky Business is looking at a project with the following estimated cash flow: [data not shown]. Risky Business wants to know the payback period, NPV, IRR, MIRR, and PI 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.**What is the payback period for the new project at Risky Business?**□ years (Round to two decimal places.)(Note: There is a space for input and references to a data table or diagram, but they are not displayed in the image.) ### Project Cash Flow Overview- **Initial Investment at Start of Project:** $10,700,000- **Cash Flow at End of Year One:** $1,819,000- **Cash Flow at End of Years Two Through Six:** $2,140,000 each year- **Cash Flow at End of Years Seven Through Nine:** $2,182,800 each year- **Cash Flow at End of Year Ten:** $1,679,077This financial outline provides a detailed breakdown of the investment and expected cash flows over a ten-year period, indicating progress and expected returns over the project lifecycle.

For determining the payback period we will have to compute the accumulated cash flows of this project and then find the payback.Year CF Cumulative CFs 0 - 10,700,000 - 10,700,000 1 1,819,000 - 8,881,000 2 2,140,000 - 6,741,000 3 2,140,000 - 4,601,000 4 2,140,000 - 2,461,000 5 2,140,000 - 321,000 6 2,140,000 1,819,000 7 2,182,800 8 2,182,800 9 2,182,800 10 1,679,077 From the cumulative cash flow figures above we can see that the cumulative cash flows are becoming positive in year 6. The payback formula is: payback = last year with negative cumulative cash flow + (amount of negative cumulative cash flow in that year/amount of cash flow in the next year) = 5 + (321000/2140000) = 5.15 years Thus payback = 5.15 yearsFor NPV we can use the NPV function in excel. The syntax is: NPV (rate,values) The rate is the discount rate = 11% and for values enter all the cash flows from year 1 to 10. This gives a value of 1,507,356 Thus NPV = 1,507,356 The calculations can be seen below: For IRR we can use the IRR function in excel. The syntax is: IRR (values, guess) Values = the different cash flows in each year and guess is the guess amount put in by you. The excel gives a value of 14.24% Hence the IRR is 14.24% The calculations can be seen below: For MIRR we can use the MIRR function in excel. The syntax is: MIRR (values, finance rate, reinvest rate) The values are the cash flows, the finance rate and reinvest rate = discount rate = 11% This will give a value of 12.47% Hence MIRR is 12.47% The calculations can be seen below:PI = profitability index = 1 + (npv/initial investment) = 1 + (1507356/10700000) = 1.14 Thus PI is 1.14 Thus the project will be accepted because: Its payback of 5.15 is less than the cut off of 6 years It has a positive NPV Its IRR and MIRR > the cost of capital of 11% Its PI > 1

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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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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

**Comparing all methods.** Risky Business is looking at a project with the following estimated cash flow: [data not shown]. Risky Business wants to know the payback period, NPV, IRR, MIRR, and PI 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.

**What is the payback period for the new project at Risky Business?**

□ years (Round to two decimal places.)

(Note: There is a space for input and references to a data table or diagram, but they are not displayed in the image.)

### Project Cash Flow Overview

- **Initial Investment at Start of Project:** $10,700,000
- **Cash Flow at End of Year One:** $1,819,000
- **Cash Flow at End of Years Two Through Six:** $2,140,000 each year
- **Cash Flow at End of Years Seven Through Nine:** $2,182,800 each year
- **Cash Flow at End of Year Ten:** $1,679,077

This financial outline provides a detailed breakdown of the investment and expected cash flows over a ten-year period, indicating progress and expected returns over the project lifecycle.

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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
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
Would you accept a project where you had an initial investment of $10,000,000 but the NPV was only $10,000? Group of answer choices A. There is not enough information B.Yes, because you will make the required return each year and the NPV in additional to the required return. C. No, the NPV is too small for such a large initial investment
Your Question : Please introduction and correct and incorrect option explain!
Please see attached:
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,…
5. Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table: a. Calculate the investment’s net present value at each of the following discount rates: 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%. b. What does your answer to part b tell you about this project’s IRR? c. Should Froogle invest in this project if its cost of capital is 5%? What if the cost of capital is 15%? d. In general, when faced with a project like this, how should a firm decide whether to invest in the project or reject it?
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 boss hands you the following information about two mutually exclusive projects. She adds the following: "Our discount rate is 10% and both projects have IRRs over 20 %. Unfortunately, we are unable to implement both, so we will go with project A since it has the highest IRR of the two." How would you respond? Give a supporting numerical analysis. Projects A B Cost of Capital 10% 10% Ranking the projects by IRR would lead to results in (Round to the nearest dollar as needed.) IRR 570% 22% Initial Cash Flow - $2000 - $170,000 Cash Flow in One Year $13,400 $207,400 decision because the NPV of project A is $ projects being selected by the NPV and IRR rules. and the NPV of project B is $. This means that project has the higher NPV, which

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