Galaxy Satellite Co. is attempting to select the best group of independent projects competing for thefirm's fixed capital budget of $10,000,000. Any unused portion of this budget will earn less than its 20percent cost of capital. A summary of key data about the proposed projects follows.ProjectАInitial InvestmentIRRPV of inflows at 20%$3,000,000$9,000,000$1,000,000$7,000,000$3,050,000$9,320,000$1,060,000$7,350,00021%В25%24%23%Use the NPV approach to select the best group of projects.

We need to do capital rationing on the basis of NPV. NPV is the difference between present value of…

Answered: Galaxy Satellite Co. is attempting to…

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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A firm has a capital budget of $3,000 and a WACC of 8%. Should the firm choose project A . project B , project C , project D , project E ? Project Cost NPV IRR A $1,000 $2,000 10% B $1,000 $1,500 13% C $1,000 $3,000 12% D $1,000 $2,500 14% E $1,000 $500 15%
The Basics of Capital Budgeting Your division is considering two projects with the following cash flows (in millions): 0 1 2 3 Project A -$31 $7 $12 $22 Project B -$19 $13 $6 $5 What are the projects' NPVs assuming the WACC is 5%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. Project A: $___ million Project B: $___ million What are the projects' NPVs assuming the WACC is 10%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. Project A: $___ million Project B: $___ million What are the projects' NPVs assuming the…
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Payback and NPV Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital. Calculate each project’s payback period. Which project is preferred according to this method?
Projects 1 and 2, of equal risk, are alternatives for expanding X Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table: Project 1 Project 2 Initial investment $60,000 $30,000 Year Cash inflows 1 $10,000 $10,000 2 $15,000 $10,000 3 $20,000 $10,000 4 $25,000 $10,000 5 $30,000 $10,000 Your Answer: (Round to two decimal places.) a. The payback period of Project 1 is The payback period of Project 2 is b. The NPV of Project 1 is $ The NPV of Project 2 is $ c. The IRR of Project 1 is The IRR of Project 2 is d. Which project will you recommend? Project %. %. years. years.
OPPfel Hospitality Consulting Inc. has two similar financial projects to offer one of its corporate clients in the hospitality industry. OPPfel wants to evaluate a set of capital budgeting projects and come up with the best decision according to the project’s IRR and PI for the client. NINV and NCF data for both of the projects are shown in the data table below: Year Project AR Project BF 0 -$100,000 -$100,000 1 $70,000 $20,000 2 $60,000 $50,000 3 $20,000 $100,000 If the minimum required rate of return is 10.00% for both of the capital budgeting projects, which one of the projects provides a better investment decision that OPPfel can consult to the its client?
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Two mutually exclusive investment altematives for implementing an office automation plan in an engineering design firm are being considered. If the firm's MARR is 10% per year, which alternative should be selected? Compare the altematives shown below on the basis of Incremental Analysis. Investment A Investment B Capital Investment, S 920,000 660,000 Annual Expenses, S/ yr. 167,000 133,000 Salvage value, S 410,000 330,000 Life, years 10 10 Determine IRR on incremental analysis, using 7% and 13% rates. Oa.86% Ob 11.1% 10.9% Od.95%

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