Consider two mutually exclusive projects A and B:Cash Flows (dollars)ProjectCoC₁A-39,00028,200B-59,00042,000C₂NPV at 10%28,20042,000+$ 9,942+13,893a. Calculate IRRs for A and B.Note: Do not round intermediate calculations. EnterProjectABIRR41.98 %36.05 %

Project AProject BC0-$39,000-$59,000C1$28,200$42,000C2$28,200$42,000NPV at 10%$9,942$13,893

Answered: Consider two mutually exclusive…

Consider two mutually exclusive projects A and B: Cash Flows (dollars) Project Co C₁ C₂ NPV at 10% A -39,000 28,200 28,200 +$ 9,942 B -59,000 42,000 42,000 +13,893

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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Consider two mutually exclusive projects A and B: Cash Flows (dollars) Project Co A -39,500 B -59,500 C₁ 28,600 42,500 C₂ NPV at 11% 28,600 +$ 9,478 42,500 +13,282 a. Calculate IRRS for A and B. Note: Do not round intermediate calculations. Enter your answers as a perc Project A B IRR % % b. Which project does the IRR rule suggest is best? Project A Project B c. Which project is really best? Project A Project B P
You are evaluating two projects with the following cash flows: Project Y -$ 511,000 209,400 Year 01234 Project X -$ 540,600 219,700 229,600 236,800 196,500 219, 200 227,100 187,900 What is the crossover rate for these two projects?
Consider two mutually exclusive projects A and B: Cash Flows (dollars) Project Co A B -39,000 -59,000 C₁ C₂ NPV at 10% 28,200 28,200 +$ 9,942 42,000 42,000 +13,893 a. Calculate IRRs for A and B. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Project A B Answer is not complete. IRR % %
Comparison of NPV and IRR: The Case of Mutually Exclusive Projects Estimated cashflow data for each of two projects, A and B, and the discount rate, r, to be used for the analysis ofcapital investment projects are given below:[LO 12-9][LO 12-9]Year Project A Project B0 ($10,000) ($10,000)1 $7,000 $2,000 2 $3,000 $3,000 3 $2,000 $4,000 4 $2,000 $6,000 Discount rate, r = 10.0%.Required 1. In a capital budgeting context, explain the difference between independent and mutually exclusiveinvestments. Give an example of each type of investment project. What is the primary implication ofthis distinction for the analysis of capital investment projects?2. Use the built-in functions in Excel to calculate the IRR and the NPV for each investment project. Whichof these projects—if either—should be accepted if they are considered independent projects? RoundIRRs to 2 decimal places and NPVs to the nearest whole dollar. 3. An NPV profile for a project is a plot of the project’s NPV as a function of the…
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y)0-$19.100-$ 19,100 18,625 9,650 2 8,650 7,575 3 8,575 8,475 Calculate the IRR for each project. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) What is the crossover rate for these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) What is the NPV of Projects X and Y at discount rates of 0 percent, 15 percent, and 25 percent?
Consider two investments A and B with the following sequences of cash flows: Net Cash Flow n Project A Project B 0 -$120,000 -$100,000 1 20,000 15,000 2 20,000 15,000 3 120,000 130,000 (a) Compute the IRR for each investment. (b) At MARR = 15%, determine the acceptability of each project. (c) If A and B are mutually exclusive projects, which project would you select, based on the rate of return on incremental investment?
Look at the cash flows for projects F and G given below. Cash Flows ($) Project Co F G NPV IRR at C4 C6 C7 Cg C1 C2 C3 (6,000) 4,400 4,400 4,400 ( % ) 10% 52.8 4,942 0 0 0 0 (6,000) 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 32.9 5,737 Project F Project G The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects' sponsors, instructs them to use a discount rate of 18%. a. What are the projects' true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) Project F Project G NPV at 10% C5 0 b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) NPV at 18%
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 15,456 5,225 8,223 13,013 8,705 0 1 234 -$ 276,363 26,400 51,000 57,000 402,000 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period b. What is the payback period for Project B? Payback period c. What is the discounted payback period for Project A? Discounted payback period
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Problem 7: NPV versus IRR. Consider the following two mutually exclusive projects: Year Cash flow Cash flow (X) (Y) O 1 2 3 -9500 5800 4000 4000 PART 7A: The NPV for X is $ Answer: 2083.77 -9500 3500 5000 6000 if the required rate of return is 10%.

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