Consider two investments A and B with the following sequences of cash flows:Net Cash FlownProject AProject B0-$120,000-$100,000120,00015,000220,00015,0003120,000130,000(a) Compute the IRR for each investment.(b) At MARR = 15%, determine the acceptability of each project.(c) If A and B are mutually exclusive projects, which project would you select,based on the rate of return on incremental investment?

The objective of this question is to calculate the Internal Rate of Return (IRR) for two investment…

Answered: Consider two investments A and B with…

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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All techniques: Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and subsequent cash inflows associated with these projects are shown in the following table. Cash flows Initial investment (CF) Cash inflows (CF), t= 1 to 5 OA. Project A a. Calculate the payback period for each project. b. Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to 11%. c. Calculate the internal rate of return (IRR) for each project. d. Indicate which project you would recommend. a. The payback period of project A is The payback period of project B is The payback period of project C is b. The NPV of project A is $ The NPV of project B is $ (Round to the nearest cent.) The NPV of project C is $. (Round to the nearest cent.) c. The IRR of project A is%. (Round to two decimal places.) The IRR of project B is %. (Round to two decimal places.) The IRR of…
Consider the following projects: Cash Flows ($) Project D E CO00 C101 -11,700 23,400 -21,700 37,975 Assume that the projects are mutually exclusive and that the opportunity cost of capital is 12%. a. Calculate the profitability index for each project. b-1. Calculate the profitability-index using the incremental cash flows. b-2. Which project should you choose?
Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year O Year 1 Year 2 Year 3 Year 4 T -$105 million $62 million $62 million F -$105 million $33 million $33 million $33 million $33 million Assuming a WACC of 7.5%, use the replacement chain approach (RCA) to compare the projects and pick the better choice, given repetition. Note that the investment in project T rises by 7% when repeated, but the other cash flows stay the same. Project T is better as its NPV is higher by $89,657 O Project F is better as its NPV is higher by $89,657 O Project T is better as its NPV is higher by $797,274 O Project F is preferable without repetition, and T is preferable with repetition O Project F is better as its NPV is higher by $797,274
Given the data below about two mutually exclusive projects with conventional cash flows and the same initial outlay, which one of the following statements about the two projects is correct? Project A Project B NPV@r=0% $3,350 $2,775 IRR 24% 18% a. At any interest rate between 18% and 24%, Project B is preferred to Project A. b. At any interest rate £ 18%, Project B has a NPV 3 0 and Project B's NPV is greater than Project A's NPV. c. At any interest rate £ 24%, Project B has a NPV 3 0 but Project B's NPV is less than Project A's NPV. Od. At any interest rate (r) greater than 24%, Project A has a positive NPV and is preferred to Project B. e. At r = 12%, Project A is preferred to Project B.
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Consider two investments A and B with the following sequences of cash flows: Net Cash Flow n Project A Project B 0 -$120,000 -$100,000 1 20,000 15,000 2 20,000 15,000 3 120,000 130,000 (a) Compute the IRR for each investment. (b) At MARR = 15%, determine the acceptability of each project. (c) If A and B are mutually exclusive projects, which project would you select, based on the rate of return on incremental investment?
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Gardial Fisheries is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: d. What is the crossover rate, and what is its significance? Crossover rate = The crossover rate represents the cost of capital at which the two projects value, at a cost of capital of 13.14% is:

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