GE has the following two projects that it is considering; it can choose onlyone. Project A has an investment outlay/expense today of $9.8M, and itscash flows over the next three years are $4.2M, $4.2M, and $5.0M.Project B has an outlay of $9.8M, and cash flows of SOM, SOM, and $14.0M. Which project should GE choose if the cost of capital for similarprojects is 3.50% ?

- To determine which project should choose, calculate the net present value NPV which measure the…

Answered: GE has the following two projects that…

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 two-year project has an initial investment of $38,643,310 and involves both a cash inflow and outflow. The cash inflow of $62,423,810 occurs at the end of year 1, while the cash outflow of $11,890,200 occurs at the end of year 2. The required rate of return is 13.5%. What is the NPV of the project? Options $7,122,513 $7,300,576 $7,478,639 $7,656,702 $7,834,764
Vermont Technology is considering a project that would last for 3 years and have a cost of capital of 21.72 percent. The relevant level of net working capital for the project is expected to be $1,990.00 immediately (at year 0); $4,830.00 in 1 year; $15,200.00 in 2 years; and $0.00 in 3 years. Relevant expected revenue, costs, depreciation, and cash flows from capital spending in years 0, 1, 2, and 3 are presented in the following table. The tax rate is 50.00 percent. What is the net present value of this project? Year 0 Revenue $0.00 Costs $0.00 Depreciation $0.00 Cash flows from capital spending $-$7,130.00 Year 1 Year 3 $12,700.00 $12,700.00 $12,700.00 $4,020.00 $4,020.00 $4,020.00 $1,950.00 $1,950.00 $1,950.00 $0.00 Year 2 $0.00 $4,180.00 $3,195.22 (plus or minus $10) -$5,233.42 (plus or minus $10) -$8,995.62 (plus or minus $10) $5,002.99 (plus or minus $10) O None of the above is within $10 of the correct answer
16. Atlas Corp. is considering two mutually exclusive projects. Both require an initial investment of $9,000 at t= 0. Project S has an expected life of 2 years with after-tax cash inflows of $6,400 and $8,500 at the end of Years 1 and 2, respectively. Project L has an expected life of 4 years with after-tax cash inflows of $4,151 at the end of each of the next 4 years. Each project has a WACC of 9.25%, and Project S can be repeated with no changes in its cash flows. The controller prefers Project S, but the CFO prefers Project L. How much value will the firm gain or lose if Project L is selected over Project S, i.e., what is the value of NPVL - NPVS? а. -2,939.41 b. -2,968.80 с. -3,233.35 d. -2,322.13 е. -2,439.71
Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $470,000 and has a present value of all its cash flows of $2,350,000. Project 2 requires an initial investment of $5,000,000 and has a present value of all its cash flows of $6,000,000. (a) Compute the profitability index for each project. (b) Based on the profitability index, which project should the company select? Complete this question by entering your answers in the tabs below. Required A Required B Compute the profitability index for each project. Profitability Index Numerator: Denominator: Profitability Index = Profitability index Project 1 Project 2
Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500 and has cash flows of $678, $652, $347, $111, $54, $16 in each of the next 6 years. Project Y also costs $1500, and generates cash flows of $738, $693, $405 for the next 3 years, respectively. WACC=11%.Calculate the projects’ NPVs, IRRs, payback periods.
An investment project provides cash inflows of $950 per year for eight years. a. What is the project payback period if the initial cost is $3,450? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the project payback period if the initial cost is $4,500? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the project payback period if the initial cost is $8,600? (Enter 0 if the project never pays back. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500 and has cash flows of $678, $652, $347, $111, $54, $16 in each of the next 6 years. Project Y also costs $1500, and generates cash flows of $738, $693, $405 for the next 3 years, respectively. WACC=11%.Plot NPV profiles for the two projects. Identify the projects’ IRRs on the graph.
The management of NUBD Co. is considering three investment projects-W, X, and Y. Project W would require an investment of P21,000, Project X of P66,000, and Project Y of P95,000. The present value of the cash inflows would be P22,470 for Project W, P73,920 for Project X, and P98,800 for Project Y. Rank the projects according to the profitability index, from most profitable to least profitable. *
Atlas Corp. is considering two mutually exclusive projects. Both require an initial investment of $11,500 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $6,000 and $7,600 at the end of Years 1 and 2, respectively. Project L has an expected life of 4 years with after-tax cash inflows of $4,283 at the end of each of the next 4 years. Each project has a WACC of 9.00%, and Project S can be repeated with no changes in its cash flows. The controller prefers Project S, but the CFO prefers Project L. How much value will the firm gain or lose if Project L is selected over Project S, i.e., what is the value of NPVL - NPVS? a. $1,501.42 b. $1,014.46 c. $ 1,783.84 d. $1,636.55 e. $1,313.76
Lakeland Ramblers is considering two mutually exclusive projects to boost their tourist revenue. Project A costs $60,000 and would produce net cash flows of $25,000 for 5 years. Project B costs $100,000 and will produce annual net cash flows of $25,000 for 10 years. If Lakeland's cost of capital is 12%, which project should be chosen using the equivalent annual annuity method? a. Project A, as NPV is $17,941 higher b. Project B, as NPV is $11,125 higher c. Project B, as NPV is $21,567 higher d. Project A, as NPV is $28,383 higher
Bluefield Inc. is considering a project that will require an initial investment of $20,000 and is expected to generate future cash flows of $5,000 for years 1 through 3 and $2,500 for years 4 through 6. The project’s payback period is: A. 6 years B. 5 years C. 4 years D. 67 years
The U3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows: Project A Investment -275,000 Year 1 $40,000 Year 2 56,000 Year 3 80,295 Year 4 90,400 Year 5 55,000 Year 6 50,000 Year 7 45,000 Year 8 32,000 Project B Investment -275,000 Year 1 $72,000 Year 2 50,000 Year 3 66,000 Year 4 72,000 Year 5 29,000 Year 6 35,000 Year 7 22,000 Year 8 36,000 Project C Investment -275,000 Year 1 $82,000 Year 2 75,000 Year 3 65,000 Year 4 55,000 Year 5 45,000 Year 6 35,000 Year 7 25,000 Year 8 15,000 Required: Compute the Net Present Value for each project using the following present value interest factors:…

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