Excel Assessment A company is considering three mutually exclusive projects for its expansion plans. The initial investment in the project is OMR 400000. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director believes that the higher IRR should be undertaken, especially as projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10.5%, and the net after-tax cash flows of the projects are as follows: Cash Flow A | Cash Flow B 70000 Year | Cash Flow C 1. 436000 90000 160000 20000 149000 180000 20000 51200 4 150000 8000 100000 5 40000 6000 49400 (All amounts are in OMR) Required: (a) Calculate the NPV, IRR, and MIRR of each project. (6) 2.

Excel Assessment A company is considering three mutually exclusive projects for its expansion plans. The initial investment in the project is OMR 400000. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director believes that the higher IRR should be undertaken, especially as projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10.5%, and the net after-tax cash flows of the projects are as follows: Cash Flow A | Cash Flow B 70000 Year | Cash Flow C 1. 436000 90000 160000 20000 149000 180000 20000 51200 4 150000 8000 100000 5 40000 6000 49400 (All amounts are in OMR) Required: (a) Calculate the NPV, IRR, and MIRR of each project. (6) 2.

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 internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,400,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company’s WACC is 7%, and project Delta has the same risk as the firm’s average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $425,000 Year 3 $400,000 Year 4 $425,000 Q1. Which of the following is the correct calculation of project Delta’s…
A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: TimeAfter-tax Cash Flow XAfter-tax Cash Flow Y -$100,000 30,000 55,000 65,000 0 1 2 3 4 -$80,000 30,000 30,000 30,000 30,000 5,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firm's WACC is 10%, what is the EAA of the project that adds the most value to the firm? Do not round. intermediate calculations. Round your answer to the nearest dollar. Choose Project -Select-, whose EAA = $
Need answers for A and B
XYZ Corporation: The data shown in the above table are for two mutually exclusive security projects that a company, called XYZ, is considering. Both projects are assumed to be strategically important to the company. Assume further the company’s cost of capital is 10%. year project A Project B 0 -200 -150 1 200 50 2 800 100 3 -800 150 Calculate the NPV of both projects. Calculate the Profitability Index for both projects. Calculate the IRR for both projects Which security project should XYZ invest in?
Tr.22.
2. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Falcon Freight: Falcon Freight is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $800,000. Falcon Freight has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Falcon Freight’s WACC is 7%, and project Sigma has the same risk as the firm’s average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $275,000 Year 2 $400,000 Year 3 $500,000 Year 4 $400,000 Which of the following is the correct calculation of…
Refer to the following information. Which of the two projects, A or B, is better in terms of internal rate of return? Kenner Company is considering two projects. Project A $85,000 $20,676 Initial investment Annual cash flows Life of the project Depreciation per year 2 3 4 5 6 7 8 9 10 6 years $14,167 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 Present value of an Annuity of $1 in Arrears Periods 8% 12% 1 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 Project B $24,000 $6,011 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 5 years $4,800 14% 0.877 1.647 2.322 2.914 4.433 3.889 4.288 4.639 4.946 5.216
Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firm’s cost of capital, r, is 10%, and the risk-free rate, RF, is 2%. The firm has estimated each project’s cash flow and each project’s beta, as shown in the following table. Project (j) E F G Initial investment (CF0) -$15,000 -$11,000 -$19,000 Year (t) Cash inflows (CFt) 1 $6,000 $6,000 $ 4,000 2 6,000 4,000 6,000 3 6,000 5,000 8,000 4 6,000 2,000 12,000 Beta 1.80 1.00 0.60 a. Find the NPV of each project, using the firm’s cost of capital. Which project is preferred in this situation? b. The firm uses the following equation to determine the risk-adjusted discount rate, RADRj, for each project j: RADRj = RF + Bj x (rm -RF) Where RF = risk-free rate 2% Bj = beta of project j RADRj = risk-adjusted discount rate for project j rm = expected return on market portfolio 10% Substitute each project’s beta into this equation to determine its RADR. c. Use the RADR for each project to…
Your department is evaluating two potential initiatives, both of which are expected to produce after-tax cash flows in millions of dollars. The Weighted Average Cost of Capital (WACC) for the division is 10%. 0 1 2 3 4 Project A -30 5 10 15 20 Project B -30 20 10 8 6 1. Calculate the projects’ regular paybacks, discounted paybacks, NPVs, profitability index, and IRRs. 2. If the two projects are independent, which project(s) should be chosen? 3. If the two projects are mutually exclusive and the WACC is 10%, which project(s) should be chosen? 4. If the WACC was 5%, would this change your recommendation if the projects were mutually exclusive? If the WACC was 15%, would this change your recommendation? Explain your answers. 5. Is it possible for conflicts to exist between the NPV and the IRR when independent projects are being evaluated? Explain your answer. 6. Now look at the regular and…
Part B: Solve the following excersises: 1. A company is considering two mutually exclusive projects X and Y. Each require an initial investment of OMR 100,000.The after tax cash inflows associated with each project are as follows: Year Project X Cash flows Project Y Cash flows (Initial Investment) 120,000 120,000 25,000 20,000 2 ? ? 3 ? ? ? ? 5 ? ? (a) Complete the table where Payback period for Project X is 3.5 and for project Y is 4. (b) Which project is better?

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