Investapp Ltd is considering whether to undertake one of two mutually exclusiveprojects, each of which would require the purchase of an asset costing £50,000,which would have a zero scrap value at the end of four years. Cost of capital isestimated at 10%. The cash flows associated with the two projects are as follows:Project X£Project Y£Initial investment50,00050,000Net cash inflows:40,00030,00020,00020,00030,00020,00030,00030,000Year 1Year 2Year 3Year 4Discount factors @ 10%Rate10%Year1.00010.9090.82630.75140.683Required:For both projects:a) Calculate the (non-discounted) Payback Period.b) Calculate the Accounting Rate of Return (ARR) using initial investmentc) Calculate the Net Present Value (NPV).

Net present value = Present value of cash inflows - present value of cash out flows Payback…

Investapp Ltd is considering whether to undertake one of two mutually exclusive projects, each of which would require the purchase of an asset costing £50,000, which would have a zero scrap value at the end of four years. Cost of capital is estimated at 10%. The cash flows associated with the two projects are as follows: Project X £ Project Y 50,000 50,000 Initial investment Net cash inflows: 40,000 30,000 20,000 20,000 Year 1 Year 2 30,000 20,000 30,000 30,000 Year 3 Year 4 Discount factors @ 10% Rate 10% Year 1.000 1 0.909 2 0.826 3 0.751 4 0.683 Required: For both projects: a) Calculate the (non-discounted) Payback Period. b) Calculate the Accounting Rate of Return (ARR) using initial investment c) Calculate the Net Present Value (NPV).

Investapp Ltd is considering whether to undertake one of two mutually exclusive projects, each of which would require the purchase of an asset costing £50,000, which would have a zero scrap value at the end of four years. Cost of capital is estimated at 10%. The cash flows associated with the two projects are as follows: Project X £ Project Y 50,000 50,000 Initial investment Net cash inflows: 40,000 30,000 20,000 20,000 Year 1 Year 2 30,000 20,000 30,000 30,000 Year 3 Year 4 Discount factors @ 10% Rate 10% Year 1.000 1 0.909 2 0.826 3 0.751 4 0.683 Required: For both projects: a) Calculate the (non-discounted) Payback Period. b) Calculate the Accounting Rate of Return (ARR) using initial investment c) Calculate the Net Present Value (NPV).

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

BECL Ltd is considering a project, which will involve the following cash inflows and (out)flows: $000 Initial Outlay (400) After 1 year 40 After 2 years 300 After 3 years 300 What will be the NPV (net present value) of this project if a discount rate of 15% is used? a. -$60.8k b. $460.8k c. $240k d. $60.8k
A Company is considering two mutually exclusive projects whose expected net cash flows are in the table below. The company's WACC is 15%. What is the NPV for Project Y? What is the NPV for Project Z? What is the IRR for Project Y? What is the IRR for Project Z? Which Project, if any, should you choose? Time Project Y Project Z 0 $(420.00) $(950.00) | $(572.00) $270.00 2 $(189.00) $270.00 3 $(130.00) $270.00 4 $1,300.00 $ 270.00 5 $720.00 $270.00 6 $980.00 $270.00 7 $(225.00) $270.00 Please show in excel I think im getting the wrong values
Findell Corporation is considering two projects, A and B, and it has gathered the following estimates for the projects Project A 5 years $84,480 $64,000 Project B 5 years $57,300 $50,000 Useful life Present value of cash inflows Present value of cash outflows What is the present value index for Project A?
A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below: Years 0 1 2 3 4 S -1,100 900 350 100 10 L -1,100 0 300 550 850 The company's cost of capital is 12 percent, and it can get an unlimited amount of capital at that cost. The cutoff payback period is two years. Which project should the company choose based on payback period and discounted payback period? Question 5 options: Based on payback, choose project L; based on discounted payback, also choose L. Based on payback, choose project L; based on discounted payback, choose neither. Based on payback, choose project S; based on discounted payback, also choose S. Based on payback, choose project S; based on discounted payback, choose neither.
The management of SARB Limited must choose between two projects to expand their business operations. The twoprojects are called Project FIC and Project PA. Each project requires an initial investment of R250 000. No scrap values are expected.You have been presented with the following information: PROJECT FICProject FIC has net cash inflows of R63000 for each of the five years of the projects lifespan. PROJECT PAProject PA is a five-year project with annual profit of R8000, R18000, R12000, R20000 and R7000 for years one to fiverespectively.The required rate of return is 15%. Depreciation is calculated using the straight-line method.Calculate Accounting Rate of Return of Project PA (answer rounded off to 2 decimal places)
The Carlo Company has been allocated RM600,000 on investment projects for the coming year. Four projects, each with a four year life and with the following cash flows are currently being considered: Year 0 1 2 3 4 Project RMk RMk RMk RMk RMk A -300 100 10 200 200 В -200 0 400 -100 0 80 80 D -150 60 60 60 60 1. Distinguish between hard and soft capital rationing 2. Assuming that the projects are divisible recommend to the Board, which projects should be accepted using the Net Present Value method and evaluate the total net present value that would be generated 3. Discuss the impact on your analysis of each project being indivisible
Badr & Sons. is evaluating 2 (TWO) mutually exclusive investment projects. INITIAL CAPITAL OUTLAY for both projects are as stated in Year 0. The company’s REQUIRED RATE OF RETURN IS 10.50% and sets 2.5 YEARS AS ITS MINIMUM (DESIRED) PAYBACK PERIOD. Information about cash flows from the project for the next four years is tabulated below: YEAR PROJECT ALPHA PROJECT BETA 0 SR -185,000 SR -145,000 1 45,000 41,000 2 75,000 45,000 3 55,000 55,000 4 66,000 70,000 What is PAYBACK PERIOD for PROJECT ALPHA ONLY.?
A project requires a $33,000 initial investment and is expected to generate end-of-period annual cash inflows as follows Year 1 Year 2 $ 15,000 $ 16,000 i = 14% n=1 0.8772 { = 14% n = 2 0.7695 Year 3 $ 15,000 Assuming a discount rate of 14%, what is the net present value (rounded to the nearest whole dollar) of this investment? Selected present value factors for a single sum are shown in the table below. Multiple Choice Help {= 14% n=3 0.6750 Save & Exit Subr
The Carlo Company has been allocated RM600,000 on investment projects for the coming year. Four projects, each with a four year life and with the following cash flows are currently being considered: Year 0 1 2 3 4 Project RMk RMk RMk RMk RMk A -300 100 10 200 200 B -200 0 0 0 400 C -100 0 0 80 80 D -150 60 60 60 60 Distinguish between hard and soft capital rationing Assuming that the projects are divisible recommend to the Board, which projects should be accepted using the Net Present Value method and evaluate the total net present value that would be generated Discuss the impact on your analysis of each project being indivisible
You have been asked by MPAC Ltd to analyse two projects, X and Y. Each project costs £1,000,000, and the company's cost of capital is 10 percent per annum. The expected net cash flows are as follows: Project X £600,000 £500,000 £300,000 £100,000 Project Y £200,000 £300,000 £400,000 £675,000 Year 1 3 4 Required: Calculate the following for each project: i) ii) iii) a) net present value modified internal rate of return discounted payback period b) Which project(s) should be accepted if they are independent? Explain why. c) How might a change in the cost of capital produce a conflict between the net present value and internal rate of return rankings of these two projects? Would this conflict exist if the cost of capital were changed? Why does the conflict exist? Discuss critically.
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $7,000 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,250 0.2 $0 0.6 $7,000 0.6 $7,000 0.2 $7,750 0.2 $19,000 BPC has decided to evaluate the riskier project at 12% and the less-risky project at 10%. a. What is each project's expected annual cash flow? Round your answers to two decimal places. Project A: $ Project B: $ Project B's standard deviation (σB) is $6,131.88 and its coefficient of variation (CVB) is 0.77. What are the values of (σA) and (CVA)? Round your answers to two decimal places. σA = $ CVA = b. Based on the risk-adjusted NPVs, which project should BPC choose? c. If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows…
Phoenix Company is considering investments in projects C1 and C2. Both require an initial investment of $234,000 and would yield the following annual net cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Net cash flows Project C1 Project C2 Year 1 $ 14,000 $ 98,000 Year 2 110,000 98,000 Year 3 170,000 98,000 Totals $ 294,000 $ 294,000 a. The company requires a 10% return from its investments. Compute net present values using factors from Table B.1 in Appendix B to determine which projects, if any, should be accepted.b. Using the answer from part a, is the internal rate of return higher or lower than 10% for (i) Project C1 and (ii) Project C2? Hint: It is not necessary to compute IRR to answer this question.