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.
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You are evaluating a project. The cash flow of this project is as follows: Year Cash Flow0 -$100,0001 45,0002 52,0003 43,000 Suppose you use the NPV decision rule. At a required rate of 11 percent, should you accept this project? Group of answer choices Accept it because NPV is $14,186.14 Accept it because NPV is $12,186.14 Reject it because NPV is -$14,186.14 Do not know because we cannot figure out NPV with the conditions given.
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 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?
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 1 123 -$42,000 19,000 22,000 18,000 What is the NPV of the project if the required return is 11%? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ At a required return of 11% should the firm accept this project? Yes No What is the NPV of the project if the required return is 24%? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) NPV At a required return of 24% should the firm accept this project? Yes No
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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 –$ 29,000 1 13,000 2 16,000 3 12,000 What is the NPV for the project if the required return is 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 12 percent, should the firm accept this project? multiple choice 1 Yes No What is the NPV for the project if the required return is 24 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 24 percent, should the firm accept this project? multiple choice 2 Yes No
Porter Company is analyzing two potential Investments. Project X $ 97,090 Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Multiple Choice If the company is using the payback period method, and it requires a payback of three years or less, which project(s) should be selected? O 32,500 32,500 32,500 0 Both X and Y are acceptable projects. O Project Y. Project Y $ 77,000 Project Y because it has a lower Initial Investment. Project X 5,700 34,500 34,500 25,000 Neither X nor Y is an acceptable project.

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