2.Data for two alternatives are as follows:AlternativesABInvestmentP35, 000P50, 000Annual benefitsP20, 000P25, 000Annual O and MP6, 450P13, 830Estimated life, years48.Net salvage valueР3, 500Using an interest rate of 20%, which alternative should be chosen?Ans: Alternative A is referred over Alternative B

NPV is the difference between the Present Value of Cash Inflows and Initial Investment. A project…

Data for two alternatives are as follows: Alternatives A B Investment P35, 000 P50, 000 Annual benefits P20, 000 P25, 000 Annual O and M P6, 450 P13, 830 Estimated life, years Net salvage value Р3, 500 Using an interest rate of 20%, which alternative should be chosen? Ans: Alternative A is referred over Alternative B

Data for two alternatives are as follows: Alternatives A B Investment P35, 000 P50, 000 Annual benefits P20, 000 P25, 000 Annual O and M P6, 450 P13, 830 Estimated life, years Net salvage value Р3, 500 Using an interest rate of 20%, which alternative should be chosen? Ans: Alternative A is referred over Alternative B

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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The five alternatives shown below are being evaluated by the rate of return method. Incremental ROR when compared with alternative B C D 27.3 9.4 35.3 25 E 1.5 38.5 24.4 Alt B D E Initial Invest, $ ROR vs DN,% 9.6 15.1 -25,000 -35,000 -40,000 -60,000 -75,000 13.4 25.4 20.2 A --- --- (d) Alt D 46.5 27.3 6.8 ... If the projects are mutually exclusive and the Minimum Attractive Rate of Return is 9.2% per year, the best alternative is: (a) Alt A (b) Alt B (c) Alt C (e) Alt E
（i.）If the projects are mutually exclusive and the required rate of return is 7%, which of the projects is chosen by NPV?a. Project Omicronb. Project Upsilonc. Project Omegad. Project Upsilon and Project Omegae. None of the above (ii.)If you use a cut-off period of two years, which of the projects would you accept using the payback period method?a. Project Omicronb. Project Upsilonc. Project Omegad. Project Upsilon and Project Omegae. None of the above
Consider the following two projects: Cash flows Project A Project B C0�0 −$ 240 −$ 240 C1�1 100 123 C2�2 100 123 C3�3 100 123 C4�4 100 a. If the opportunity cost of capital is 8%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 8%. c. Which one would you choose if the cost of capital is 16%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h. If the opportunity cost of capital is 8%, what is the profitability index for each project? i. Is the project with the highest profitability index also the one with the highest NPV? j. Which measure should you use to choose between the projects?
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The following two alternatives are given. Data A B. First Cost $8,200 $5,600 Annual Cost $1,000 $800 Annual Benefit $2,700 $2,100 Life, Years 7. Salvage Value $2,800 $1,000 Assume that MARR is 15%. Use the incremental rate of return analysis to determine which alternative (A or B) one should choose. Find the AIRR, or a range of AIRR. O 10% O 10-12% O 12-15% O > 15%
You are considering two similar but mutually exclusive investments. You have calculated that: Project A has an NPV = $7,600 and IRR = 19.80% Project B has an NPV = $11,200 and IRR = 17.30% Which project would you select? Project A O Project B
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
Net present value Using a cost of capital of 15%, calculate the net present value for the project shown in the following table and indicate whether it is acceptable, The net present value (NPV) of the project is $. (Round to the nearest cent.) Is the project acceptable? (Select the best answer below.) O Yes No Data table (Click on the icon here in order to copy the contents of the data table below a spreadsheet.) Initial investment (CF) Year (0) 1 2 3 4 5 6 7 8 9 10 -1,156,000 Cash inflows (CF) $75,000 $140,000 $192,000 $254,000 $313,000 $378,000 $271,000 $97,000 $49,000 $26,000
Data for 2 alternatives are given below. If i = 10%, determine the cost of alternative A so that the 2 alternatives will be equally desirable using BC ratio.
Q16) Salalah company management is considering three competing investment Projects A, B and C. Year Project A Project C 1000 300 Project B Initial Investment 1000 250 1000 1 275 275 250 300 300 300 300 3 250 275 4 250 250 275 275 Assume a discount Rate of 3% Required: Use the information below and help the management in choosing the most desirable Project using the following techniques: a) Payback period b) Discounted Payback Period c) Net Present value d) Profitability index.
Information on four investment proposals is given below: Investment required. Present value of cash inflows Net present value Life of the project Answer is complete but not entirely correct. Profitability Index Investment Proposal ABCO A В Required: 1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference. с D 3 0.41 0.38 0.50 0.33 Rank Preference A $ (240,000) 337,300 $ 97,300 Second Third First Fourth ✓ ✔ 5 years Investment Proposal $ (73,500) 110,250 $36,750 B $ (105,000) 144,900 $ 39,900 7 years 6 years $ (126,000). 168,000 $ 42,000 6 years

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