None 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 PI of thisproject. The appropriate discount rate for 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 projectunder 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: $10,900,000Cash flow at end of year one: $1,853,000Cash flow at end of years two through six: $2,180,000 each yearCash flow at end of years seven through nine: $2,408,900 each yearCash flow at end of year ten: $1,720,643PrintDone

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Answered: Comparing all methods. Risky Business…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

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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
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.
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively. Time Project A Cash Flow Project B Cash Flow Use the payback decision rule to evaluate these projects, which one(s) should it be accepted or rejected? Multiple Choice 0 -35,000 -45,000 1 25,000 25,000 2 45,000 5,000 3 16,000 65,000
Please see image for question to solve for. Question C options are; This would make Project B more appealing.This would make Project B less appealing.
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 12 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 -1,150 30 570 770 770 370 770 Use the NPV decision rule to evaluate this project; should it be accepted or rejected? Multiple Choice A. $968.66, accept B. $2,118.66, accept C. $-495.13, reject D. $864.87, accept
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 13 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 -1,110 70 530 730 730 330 730 Use the payback decision rule to evaluate this project; should it be accepted or rejected? Multiple Choice A. 1.10 years, accept B. 4.00 years, reject C. 2.70 years, reject D. 0 years, accept
Calculate the payback period, net present value, and internal rate of return for Project A. Assume a discount rate of 10%. Should the firm accept or reject Project A? Explain. If Project A and Project B are mutually exclusive, which is the better choice? Explain. What are “non-conventional” cash flows? What issues arise when evaluating projects with “non-conventional” cash flows? Project A Project B Year Cash Flow Year Cash Flow 0 -$100,000 0 -$1 1 $70,000 1 $0 2 $0 2 $0 3 $50,000 3 $10
Suppose you have to choose between two mutually exclusive investment projects with the following cash flows (all numbers are in $1,000s): [image attached] Both projects have a discount rate of 9%. Determine the Payback Period, Net Present Value (NPV) and the IRR for each project. Which is the better project based on NPV? And how can you use the IRR criterion to obtain the correct (i.e., value maximizing) project choice? t=0 t = 1 t = 2 Project A -$400 $250 $300 Project B -$200 $140 $179 Skip Extension Tip: Double click to open in new tab
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?
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 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time 1 2 3 4 Cash Flow -1,150 30 570 770 770 370 770 Use the NPV decision rule to evaluate this project; should it be accepted or rejected?
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 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: Cash flow: Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) MIRR 0 1 2 4 5 -$240,000 $64,800 $83,000 $139,000 $121,000 $80, 200 rejected O accepted % Should it be accepted or rejected?
Project A and B have a cost of OMR (700). Each project generates cash flows as seen in the below table, According to the payback period method and in the line of risk and liquidity preference, answer the following:- (Hint:- Your answer must be not random.) which is the project you will select? Justfy your decision. End-of- Year Cash Flow Project 1 2 3 A 500 300 100 B 400 450 100

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