The board of directors of General Wheels Co. is considering seven large capital investments. These investments differ in the estimated long-runprofit (NPV) that they will generate as well as in the amount of capital required, as shown by the following table.Investment OpportunityEstimated Profit (millions)Capital Required (millions)A$17$4310281534194871713329.23The total amount of capital available for these investments is $100 million. Investment opportunities A and B are mutually exclusive, and so are Cand D. Furthermore, neither C nor D can be undertaken unless one of the first two opportunities is undertaken. There are no such restrictions oninvestment opportunities E, F, and G. The objective is to select the combination of capital investments that will maximize the total estimated long-run profit (NPV).Formulate the model on a spread and solve using Solver. Give the following:i. Objective function: Maximize NPV =ii. Optimal combination of investment opportunities (use comma as separator; ex: A, B, E, F): Investment/siii. Optimum NPV: $millions

NPV stands for net present value. It is one of the often used capital budgeting tool that companies…

Formulate the model on a spread and solve using Solver. Give the following: i. Objective function: Maximize NPV = ii. Optimal combination of investment opportunities (use comma as separator; ex: A, B, E, F): Investment/s iii. Optimum NPV: $ millions

Formulate the model on a spread and solve using Solver. Give the following: i. Objective function: Maximize NPV = ii. Optimal combination of investment opportunities (use comma as separator; ex: A, B, E, F): Investment/s iii. Optimum NPV: $ millions

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

The board of directors of General Wheels Co. is considering seven large capital investments. These investments differ in the estimated long-run
profit (NPV) that they will generate as well as in the amount of capital required, as shown by the following table.
Investment Opportunity
Estimated Profit (millions)
Capital Required (millions)
A
$17
$43
10
28
15
34
19
48
7
17
13
32
9.
23
The total amount of capital available for these investments is $100 million. Investment opportunities A and B are mutually exclusive, and so are C
and D. Furthermore, neither C nor D can be undertaken unless one of the first two opportunities is undertaken. There are no such restrictions on
investment opportunities E, F, and G. The objective is to select the combination of capital investments that will maximize the total estimated long-
run profit (NPV).
Formulate the model on a spread and solve using Solver. Give the following:
i. Objective function: Maximize NPV =
ii. Optimal combination of investment opportunities (use comma as separator; ex: A, B, E, F): Investment/s
iii. Optimum NPV: $
millions

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Which of the following statements is CORRECT? a. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. b. An NPV profile graph shows how a project's payback varies as the cost of capital changes. O c. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. d. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.
Calculate the project's coefficient of variation. (Hint: Use the expected NPV.) Squared dev. Prob. NPV NPVI - E{NPV) Squared deviation times probability 0.24 S6,289.81 $5,829 SS 0.24 -$2,390.74 -S2,852 SS 0.32 -S1,233.33 -S1,694 $$ 0.20 -$ 400.00 -$861 SS 1.00 $ 461.11 Variance S Standard deviation $ 5.87 6.52 7.25 7.97 8.77
Computing Present and Future Values Under Different Assumptions Determine the unknown variables in each of the four separate investment scenarios. Round the RATE to one percentage point (for example, enter 8.5 for 8.54444%). Round NPER, PV, and PMT to the nearest whole number. Use a negative sign only for an amount related to PMT. Investment 1 Investment 2 Investment 3 Investment 4 RATE Answer 7% 6% 1% NPER 10 Answer 4 24 PV $216,000 $9,000 Answer $21,600 PMT $(35,000) $(2,300) $(16,200) Answer TYPE End of period Beg. of period End of period Beg. of period
What would you recommend if the benefit / cost ratio is >1: Select one: a. The project must be accepted. b. Benefit / cost ratio cannot be >1 c. The project must be rejected. d. Benefit / cost ratio always =1
The advantage(s) of the discounted payback method over the payback method of project analysis include:I. ease of use II. liquidity bias III. arbitrary cutoff point IV. the consideration of time value of money V. works well for research and development projects Multiple Choice I, II, III, IV and V III and V only IV only I, II, III and V only III only
Compute the Profitability Index (PI) for each project? Project A Project B Profitability Index (PI) 5- In light of your answers above, suppose that these two projects might be mutually exclusive or independent. According to these two assumptions, fill in the blanks in the table below with the suitable answer: Points Investment Criteria If A and B are mutually exclusive, then I would select If A and B are independent, then I would select PBP NPV IRR PI
Click on the quadrant that will yield the best capital budgeting decision. - NPV Hi IRR Low IRR + NPV
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Which of the following equations is used to compute the future value using continuous compounding? OFV_-ex PV OFV_=PVxelxn OFV_=e+ PV OFV-PV+exn

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