EV Hyper Chargers is considering a project with the following cash flows:Year 0Year 1Year 2Year 3Year 4-$133 million $30 million$40 million$55 million$75 millionUse the IRR rule to decide which of the following statements is correct:The project should be accepted if the WACC is 17%, as the IRR of 15.76% is lowerthan the WACCThe project should be accepted because the IRR of 15.76% is positiveThe project should be rejected if the WACC is 13%, as the IRR of 14.76% is higherthan the WACCThe project should be rejected if the WACC is 17%, as the IRR of 15.76% is lowerthan the WACCThe project should be accepted if the WACC is 13%, as the IRR of 14.76% ishigher than the WACC

Calculate the IRR for the project's cash flows: Given:Year 0Year 1Year 2Year 3Year 4-$133 million$30…

Answered: EV Hyper Chargers is considering a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

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There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment or $28.000 and is expected to generate the following cash flows: If the discount rate is 5% compute the NPV of each project and make a recommendation of the project to be chosen.
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site. Gardial Fisheries is considering two mutually exclusive investments. The projects expected net cash flows are as follows: a. If each projects cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice? b. Construct NPV profiles for Projects A and B. c. What is each projects IRR? d. What is the crossover rate, and what is its significance? e. What is each projects MIRR at a cost of capital of 12%? At r = 18%? (Hint: Consider Period 7 as the end of Project Bs life.) f. What is the regular payback period for these two projects? g. At a cost of capital of 12%, what is the discounted payback period for these two projects? h. What is the profitability index for each project if the cost of capital is 12%?
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?
Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 28,900 1 12,900 2 15,900 3 11,900 What is the NPV for the project if the required return is 11 percent? At a required return of 11 percent, should the firm accept this project? What is the NPV for the project if the required return is 25 percent?
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Rockmont Recreation Inc. is considering a project that has the following cash flow and WACC data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC, in which case it will be rejected. WACC-10%, Cash Flow Year 0 -1000, Cash Flow Year 1 = $450, Cash Flow Year 2 = $440, Cash Flow Year 3 = $430. 15.41% 15.55% 15.76% 16.13%
Please answer the following questions using the information below: NPV. Using a 10% required rate of return, calculate the NPV for this project. Should it be accepted or rejected? PI. Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected? Consider the following cash flows: Year 0 1 2 3 4 5 6 Cash Flow -$8,000 $3,000 $3,600 $2,700 $2,500 $2,100 $1,600 Payback. The company requires all projects to payback within 3 years. Calculate the payback period. Should it be accepted or rejected? Discounted Payback. Calculate the discounted payback using a discount rate of 10%. Should it be accepted or rejected? IRR. Calculate the IRR for this project. The company’s required rate of return is 10%. Should it be accepted or rejected? NPV. Using a 10% required rate of return, calculate the NPV for this project. Should it be accepted or rejected? PI. Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected?…
The Michner corporation is trying is trying to choose between the following 2 mutually exclusive design project: Cash Flow 1 Cash Flow 2 Year 0: -82000 -21700 Year 1: 37600 11200 Year 2: 37600 11200 Year 3: 37600 11200 If the required return is 10% and the company applies the profitability index decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take? why are a & b are different
Nashville's Kitchen Corp. is considering a proposed project with the following cash flows. If both the discount rate and the reinvestment rate are 16 percent, what is the project’s modified internal rate of return (MIRR) using the combination approach? Solve using a Financial Calculator showing all calculator inputs. Year Cash Flow 0 –$375,000 1 133,500 2 -35,600 3 244,700 4 271,000

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