Project XInitial investment (CF) $500,000Year (1)12345Project Y$330,000Cash inflows (CFt)$130,000$120,000$130,000$200,000$240,000$150,000$130,000$75,000$80,000$60,000 IRR-Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table:13%.a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs.b. Which project is preferred?a. The internal rate of return (IRR) of project X is%. (Round to two decimal places.)The firm's cost of capital is

Answered: Initial investment Year (1) 1 2345…

Initial investment Year (1) 1 2345 Project X (CF) $500,000 Project Y $330,000 Cash inflows (CF₂) $130,000 $150,000 $120,000 $130,000 $75,000 $80,000 $60,000 $130,000 $200,000 $240,000

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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11-1 NPV Project K costs $52,125, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the project’s NPV?1 1-2 IRR Refer to problem 11-1. What is the project’s IRR?
Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for both products is 13 percent. Project A: Project B: Nagano NP-30. Professional clubs that will take an initial investment of $710,000 at Year 0. For each of the next 5 years, (Years 1-5), sales will generate a consistent cash flow of $310,000 per year. Introduction of new product at Year 6 will terminate further cash flows from this project. Nagano NX-20. High-end amateur clubs that will take an initial investment of $880,000 at Year O. Cash flow at Year 1 is $260,000. In each subsequent year, cash flow will grow at 10 percent per year. Introduction of new product at Year 6 will terminate further cash flows from this project. Year 0 1 2 3 4 5 NP-30 NX-20 -$710,000 -$ 880,000 260,000 * 310,000 310,000 310,000 310,000 310,000 Complete the following table: (Do not round intermediate calculations. Round your "PI" answers to 3 decimal places, e.g., 32.161, and other…
QUESTION 14 You have a total of $30,000 to invest in a project and are considering the following three projects: Cash Flows Project A ($30,000) $8,500 Year Project B ($30,000) $19,600 Project C ($30,000) $10,400 1 $9,300 $17,300 $4,500 $10,400 $10,400 3. $10,400 4. $11,200 $4,200 $10,400 $12,300 $2,300 $10,400 If the cost of capital (discount rate) is 10%, which project(s) do you invest in and why? A. Project B- it will pay back the quickest OB. Project C- it generates the greatest cash flow C. Project A-it has the highest accounting rate of return D.Project B-it has the highest net present value E. Project A- it has the highest net present value OF. Project C- it has the highest profitability index
Internal rate of return and modified internal rate of return. Quark Industries has three potential projects, all with an initial cost of $2,100,000. Given the discount rate and the future cash flow of each project in the following table, E, what are the IRRS and MIRRS of the three projects for Quark Industries?
The cash flows associated with a project can be represented by the following decision tree (conditional probabilities are in parentheses): Year 0 Year 1 -$800 $400 (4) $212 56 $500 (6) Year 2 $300 (5) $500 (5) $400 (5) $600 (15) Year 3 $200 (5) $400 (5) $400 (5) $600 (.5) $300 (5) $500 (5) $500 (5) $700 (5) Given this data, determine the expected NPV for this project if the appropriate cost of capital is 12.36 percent.
ok 11 ik rit ances Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Cash Inflow $ 4,000 $ 8,000 $ 9,000 $ 10,000 $ 13,000 Year 1 2 3 4 5 6 7 8 100 9 10 Investment $ 69,000 $9,000 $ 11,000 $ 14,000 $ 12,000 $ 11,000 $ 11,000 Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several timer
Year 0 2 Project A -$50,000 $24,200 $16,800 $46,500 Project B -$45,000 $39,000 $18,000 $18,000 Assume these projects are mutually exclusive and the cost of capital is 12.6%. Which of the following statements are true? A. The payback period of project A is 2.19 years. B. You'll accept project A since its NPV is about $872.85 greater than that of project B. C. You'll accept project B since its payback period is shorter than project A. D. Both (A) and (B) are true. E. Both (A) and (C) are true.
The following information is provided by Doppler Systems: Project A Project B Project C Project D Initial investment $440,000 $202,000 $550,000 $506,000 PV of cash inflows $570,000 $394,000 $816,000 $406,000 Payback period (years) 3.6 3.2 4.0 20 NPV of project $130,000 $192,000 $266,000 $100,000 Calculate the profitability index for Project A. (Round your answer to two decimal places.) 1.09 1.67 0.85 1.30
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: Operating Income Net Cash Flow Investment Year Proposal A: $450,000 $ 30,000 1 $120,000 2 30,000 120,000 3 20,000 110,000 4 10,000 100,000 (30,000) $ 60,000 $ 60,000 40,000 60,000 $510,000 $100,000 Proposal B: $200,000 1 80,000 3 20,000 60,000 4 (10,000) 30,000 (20.000) $ 90,000 20.000 $290,000 (Continued)
ff2
ST-2 CAPITAL BUDGETING CRITERIA You must analyze two projects, X and Y. Each project costs $10,000, and the firm's WACC is 12%. The expected net cash flows are as follows: 2 3 Project X -$10,000 Project Y -$10,000 $6,500 $3,500 $3,000 $3,500 $3,000 $3,500 $1,000 $3,500 a. Calculate each project's NPV, IRR, MIRR, payback, and discounted payback. b. Which project(s) should be accepted if they are independent? c. Which project(s) should be accepted if they are mutually exclusive? d. How might a change in the WACC produce a conflict between the NPV and IRR rankings of the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot the NPV profiles. The crossover rate is 6.21875%.) e. Why does the conflict exist?
None

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