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: . The firm's cost of capital is 15%. 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.) Is project X acceptable on the basis of IRR? (Select the best answer below.) No O Yes The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Is project Y acceptable on the basis of IRR? (Select the best answer below.)

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: . The firm's cost of capital is 15%. 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.) Is project X acceptable on the basis of IRR? (Select the best answer below.) No O Yes The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Is project Y acceptable on the basis of IRR? (Select the best answer below.)

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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Consider a project with the following cash flows. Year Cash Flow 0 -$17,000 1 45,000 2 -29,000 What’s the IRR of the project? If a firm’s cost of capital is 17%, should the firm accept the project? Group of answer choices 53.8%; accept the project 10.9% and 53.8%; accept the project 10.9%, and 53.8%; reject the project 10.9%; reject the project
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $894.60 $240 $15 $15 Project L -$1,000 $0 $250 $380 $836.66 The company's WACC is 8.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places. %
NPV-Mutually exclusive projects Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The cash flows associated with each are shown in the following table: 13%. a. Calculate the net present value (NPV) of each press. b. Using NPV, evaluate the acceptability of each press. c. Rank the presses from best to worst using NPV. d. Calculate the profitability index (PI) for each press. e. Rank the presses from best to worst using Pl. a. The NPV of press A is $ (Round to the nearest cent.) Data table (Click on the icon here into a spreadsheet.) Initial investment (CF) Year (t) 1 234 5 in order to copy the contents of the data table below 678 Machine A $85,000 $17,700 $17,700 $17,700 $17,700 $17,700 $17,700 $17,700 $17,700 Print Machine B $60,100 Cash inflows (CFt) $11,900 $13,700 $16,400 $18,400 $20,400 $25,100 Done Machine C $130,100 $50,200 $29,900 $20,400 $19,700 $20,200 $30,000 $40,500…
All techniques with NPV profile Mutually exclusive projects Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 16%. The cash flows for each project are shown in the following table: a. Calculate each project's payback period. b. Calculate the net present value (NPV) for each project. c. Calculate the internal rate of retum (IRR) for each project. d. Indicate which project you would recommend. a. The payback period of project A is years. (Round to two decimal places.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment (CFO) Year (t) 123 4 5 Project A $230,000 Project B $200,000 Cash inflows (CFt) $60,000 $65,000 $70,000 $75,000 $80,000 $60,000 $60,000 $60,000 $60,000 $60,000 I X
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3. You are analyzing the following two mutually exclusive projects and have developed the following Which information. Please calculate the IRRS for the two projects and the crossover rate. project should you accept if the cost of capital is 5%, and which project should you accept if the cost of capital is 10%? Year 0 1 3 Project A Cash Flow -$84,500 $29,000 $40,000 $27,000 IRR A: IRR B: Crossover Rate: If WACC-5%, accept If WACC=10%, accept Project B Cash Flow -$76,900 $25,000 $35,000 $26,000 J
Unequal lives-ANPV approach Portland Products is considering the purchase of one of three mutually exclusive projects for increasing production efficiency. The firm plans to use a 13.1% cost of capital to evaluate these equal-risk projects. The initial investment and annual cash inflows over the life of each project are shown in the following table. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment (CF) Year (t) 1 2345678 u. VUIMMU BIV TRE Project X $78,000 $16,700 25,100 33,000 40,800 PETIT. Project X Project Z Project Y Project Y $52,000 Cash inflows (CF) $27,800 38,200 a. Calculate the NPV for each project over its life. Rank the projects in descending order on the basis of NPV. b. Use the annualized net present value (ANPV) approach to evaluate and rank the projects in descending order on the basis of ANPV c. Compare and contrast your findings in parts (a) and (b). Which project would you recommend that the firm…
Project X Initial investment (CF) $500,000 Year (1) 1 2 3 4 5 Project Y $330,000 Cash inflows (CFt) $130,000 $120,000 $130,000 $200,000 $240,000 $150,000 $130,000 $75,000 $80,000 $60,000
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3. Lopez Industries has identified the following two mutually exclusive capital investment projects: Year Project A Project B 0 1 2 3 4 -16000 400 800 13000 -15500 12500 8000 800 14000 800 What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11%, what is the NPV for each of these projects? Which project should the firm accept if they apply the NPV rule?
Robinson Robotics is considering two mutually exclusive projects, Project A and Project B. The projects have the following cash flows: Year Project A Cash Flow Project B Cash Flow 0 -$200 -$300 1 20 90 2 30 70 3 40 60 4 50 50 5 60 40 At what cost of capital would the two projects have the same net present value (NPV)? 12.69% 9.32% 10.32% 8.14% None of the above
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