Global Systėms Inc. Plans to open a new product line next year. The after tax cash inflows of the two plans is listed below. The firm's cost of capital is 15 percent. The initial investment for each plan is Rs5,00,00o. PLAN YEAR 1 YEAR2 YEAR3_YEAR4 YÉARS AB Rs300 Rs325 Rs150 "Rs30O Rs225 - Rs100 XY Rs150 Rs200 Rs325 Rs100 a) Construct the NPV profiles for PLAN AB and PLAN XY. Which PLAN has a higher IRR?. b) According to the NPV criterion which PLAN should Global Systems choose? c) Calculate the cost of capitał at which the NPV and the IRR rankings conflict?. d) Which plan should the company choose? Why?
Global Systėms Inc. Plans to open a new product line next year. The after tax cash inflows of the two plans is listed below. The firm's cost of capital is 15 percent. The initial investment for each plan is Rs5,00,00o. PLAN YEAR 1 YEAR2 YEAR3_YEAR4 YÉARS AB Rs300 Rs325 Rs150 "Rs30O Rs225 - Rs100 XY Rs150 Rs200 Rs325 Rs100 a) Construct the NPV profiles for PLAN AB and PLAN XY. Which PLAN has a higher IRR?. b) According to the NPV criterion which PLAN should Global Systems choose? c) Calculate the cost of capitał at which the NPV and the IRR rankings conflict?. d) Which plan should the company choose? Why?
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 # 2
Global Systėms Inc. Plans to open a new product line next year. The
after tax cash inflows of the two plans is listed below. .The firm’s
cost of capital is 15 percent. The initial investment for each plan is
Rs5,00,000.
PLAN
YEAR 1 YEAR2
YEAR3
YEAR4
YEARS
AB
Rs300
Rs225.
Rs325
Rs325
Rs150
Rs100
XY
Rs150
Rs200
-"Rs300
Rs100
a) Construct the NPV profiles for PLAN AB and PLAN XY. Which
PLAN has a higher IRR?.
b) According to the NPV criterion which PL AN should Global
Systems choose?
c) Calculate the cost of capital at which the NPV and the IRR
rankings conflict?.
d) Which plan should the company choose? Why?
*Note: All value of year 1 to 5 are in "000"](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5c41e00f-cb70-4e27-99d9-0ceb3cf960c9%2F1f054bee-1e54-4905-a687-ef956509f73d%2F70w8f3_processed.png&w=3840&q=75)
Transcribed Image Text:Question # 2
Global Systėms Inc. Plans to open a new product line next year. The
after tax cash inflows of the two plans is listed below. .The firm’s
cost of capital is 15 percent. The initial investment for each plan is
Rs5,00,000.
PLAN
YEAR 1 YEAR2
YEAR3
YEAR4
YEARS
AB
Rs300
Rs225.
Rs325
Rs325
Rs150
Rs100
XY
Rs150
Rs200
-"Rs300
Rs100
a) Construct the NPV profiles for PLAN AB and PLAN XY. Which
PLAN has a higher IRR?.
b) According to the NPV criterion which PL AN should Global
Systems choose?
c) Calculate the cost of capital at which the NPV and the IRR
rankings conflict?.
d) Which plan should the company choose? Why?
*Note: All value of year 1 to 5 are in "000"
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