# Net Present Value Method### Consider the case of Underwood Manufacturing:Underwood Manufacturing is evaluating a proposed capital budgeting project that will require an initial investment of $120,000. The project is expected to generate the following net cash flows:| Year | Cash Flow ||-------|-----------|| Year 1| $37,600 || Year 2| $50,500 || Year 3| $45,000 || Year 4| $41,900 |Assume the desired rate of return on a project of this type is 10%. What is the net present value of this project?- ⭘ $-$4,415.10$- ⭘ $ $18,344.79 $- ⭘ $-$7,244.50$- ⭘ $ $23,914.50 $Suppose Underwood Manufacturing has enough capital to fund the project, and the project is not competing for funding with other projects. Should Underwood Manufacturing accept or reject this project?- ⭘ Accept the project- ⭘ Reject the project

Given information :- Years Cash flows Year 1 $37,600 Year 2 $50,500 Year 3 $45,000 Year 4…

Answered: # Net Present Value Method ###…

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 the case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $900,000. 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 returns in percentage form are easier to understand and compare to required returns. Blue Llama Mining Company’s WACC is 9%, 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 $300,000 Year 2 $425,000 Year 3 $475,000 Year 4 $450,000 Which of the following is the correct…
I need help finding the Profitability index for each project (D) using Excel
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…
Suppose Celestial Crane Cosmetics is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,000,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $450,000 Year 3 $425,000 Year 4 $475,000 Celestial Crane Cosmetics’s weighted average cost of capital is 10%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$1,972,140 $1,356,550 -$1,643,450 -$4,643,450

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