Example 5:A firm is evaluating two mutually exclusive investment proposals for a project that will last for fiveyears, with negligible salvage value. The minimum attractive rate of return (MARR) for the firm is14.5%. The details of the two alternatives are as follows:InvestmentAnnual net incomeAlternativesA1A2$150,000$230,000$60,000$80,000Find the best alternative based on the rate of return method of comparison.

The rate of return method was used to calculate the internal rate of return (IRR) for both…

Answered: Example 5: A firm is evaluating two…

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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Question: Consider the following information. If you apply the profitability index criterion, which investment will you choose? Suppose that whichever project you choose, if any, you will require a 15% return on your investment. Year CF of Project A CF of Project B 0 -$350,000 -$50,000 1 45,000 24,000 2 65,000 22,000 3 65,000 19,500 4 440,000 14,600
2. 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 4 8. Net salvage value Р3, 500 Using an interest rate of 20%, which alternative should be chosen? Ans: Alternative A is referred over Alternative B
Project X has an initial investment at time O of $1,000 and it returns $250 one year from now and$1,000 two years from now. Project Y has an initial investment at time O of $2,000 and it returns$2,534.40 two years from now. The risk level and the net present values of the two projects areequal. Calculate the required return for project X. Answer: 12% please do not solve with excel
A project is estimated to cost P120T, last 8 years & have a salvage value of P20T. The annual gross income is expected to average P40k & annual expenses is P6T. If capital is earning 12% determine if this a desirable investment using rate of return. What is your computed ROR? Select one: a. 20.07% b. 21.07% c. 17.17% d. 23.17%
Jefferson International is trying to choose between the following two mutually exclusive design projects: Cash Flow (B) -$38,000 Year Cash Flow (A -$75,000 32.400 17,800 30,200 14,200 3 36.600 19.800 The required return is 12 percent. If the company applies the profitability index (PI) decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take? Given your first two answers, which project should the firm actually accept? Project A; Project B; Project A O Project A; Project B; Project B O Project B; Project A; Project A O Project B; Project A; Project B O Project B; Project B, Project B
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0. -$ 41,000 20,000 23,000 14,000 1 3. What is the NPV of the project if the required return is 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.., 32.16.) NPV At a required return of 11 percent, should the firm accept this project? No O Yes What is the NPV of 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.)
10. Jefferson International is trying to choose between the following two mutually exclusive design projects: The required return is 25 %. If the company applies the profitability index (PI) decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take? Given your first two answers, which project should the firm actually accept? Year Cash flows (A) Cash flows (B) 0 $ 92,000 $ 72,000 1 $ 26,900 $ 37,900 2 $ 26,900 $45,600 3 $92,700 $ 25,000
Following is information on two alternative investments being considered by Tiger Co. The company requires a 4% return from its investments. Compute each project’s (a) net present value and (b) profitability index. (Round present value calculations to the nearest dollar and round the profitability index to two decimal places.) If the company can choose only one project, which should it choose?
Given the financial data for four mutually exclusive alternatives in the table below, determine the best alternative using the incremental rate of return (AROR) analysis. MARR =10%. A B D First cost $15,000 $21,200 $36,000 45,000 O &M Cost/ 1,600 700 400 1,000 year Benefit/year 8,000 9,000 13,000 15,000 Salvage value 3,000 4,600 6,000 10,000 Life in years 5
A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow -$ 27,600 11,600 14,600 10,600 1 2 If the required return is 18 percent, what is the IRR for this project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % Should the firm accept the project? O No Yes eBook & Resources eBook: 9.5. The Internal Rate of Return Check my work 00
The Yoo Corporation is trying to choose between the following two mutually exclusive design projects: 2 points Year Cash Flow (I) Cash Flow (II) 0 -$ 65,000 -$ 17,900 1 30,000 9,650 2 3 9,650 9,650 Mc Graw Hill 30,000 30,000 a-1. If the required return is 12 percent, what is the profitability index for both projects? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. × Answer is complete but not entirely correct. Project I Project II 1.331 x 1.236 × a-2. If the company applies the profitability index decision rule, which project should the firm accept? Project I Project II b-1. What is the NPV for both projects? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. × Answer is complete but not entirely correct. Project I $ 15,357.13 x Project II $ 7,948.20 x < Prev 1 of 1 Next

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