Logan Company is considering two projects, A and B. The following information has beengathered on these projects:Project AProject BInitial investment needed..$40,000$60,000$60,000$85,000Present value of future cash flows.Useful life4 years4 yearsBased on this information, which of the following statements is (are) true?I. Project A has the highest ranking according to the project profitability index criterion.II. Project B has the highest ranking according to the net present value criterion.A. Only IB. Only||C. Both Iand IID. Neither I nor II

Solution:- Profitability Index measures the ratio of Present value of future cash flows to the…

Answered: Logan Company is considering two…

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

See similar textbooks

Similar questions

The management of FICSIT Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:YearWind TurbinesBiofuel Equipment1$270,000$300,5002270,000300,5003270,000300,5004270,000300,500The wind turbines require an investment of $877,600, while the biofuel equipment requires an investment of $910,000. No residual value is expected from either project.Problem 2 Instructions a. Determine the internal rate of return for each project by:i. computing a present value factor for an annuity of $1 and ii. using the present value of an annuity of $1 table appearing in this chapter (Exhibit 5).
A firm is planning to introduce a new product and has called for bids for the construction of the plant to manufacture the product. The cash flows predicted for the two bids under consideration are given below: Cash Flow Year Plant A Plant B -90,000 -50,000 1 45,000 30,000 2 55,000 37,000 3 50,000 28,000 Using the net present value (NPV) approach, with an interest rate of 7% p.a., which plant should the company choose?
1) ABC Inc. is looking at investing in a 3-year project that will create cash inflows of $7,000 in the first year, $8,000 in the second year, and $9,000 in the third year. The cost of this project is $18,000, and the required return is 12%. Should the company invest in this project based on the profitability index criterion? Multiple Choice 1.14 1.45 1.38 0.94 1.06 2) ABC Inc., a wedge manufacturer, is deciding between two machines used for making wedges. Machine A will cost $70,000 and Machine B will cost $120,000. The annual before-tax operating costs for Machine A and B are $7,500 and $6,000, respectively. Machine A will last for 2 years before it has to be replaced, whereas Machine B will last for 3 years before it must be replaced. The machines are subject to CCA rate of 30%, and the company's marginal tax rate is 35%. If the required return for ABC is 16%, which machine should ABC choose? Assume that salvage is zero. Multiple Choice Choose Machine A as its EAC is…
Consider the following three projects. All three have an initial investment of $500,000. E (Click the icon to view the investments.) Requirements 1. Determine the payback period of each project. Rank the projects from most desirable to least desirable based on payback. 2. Are there other factors that should be considered in addition to the payback period? Requirement 1. Determine the payback period of each project. Rank the projects from most desirable to least desirable based on payback. First, determine the payback period of each project. (Enter the payback period as a numeral ) Payback period in Project years Project L years 6 Data Table Project M years Project N years Net Cash Inflows Project L Project M Project N Year Annual Accumulated Annual Accumulated Annual Accumulated Year 1 $ 100,000 $ 100,000 $ 50,000 $ 50.000 $ 250,000 $ 250,000 Year 2 100,000 200,000 100, 000 150 000 250,000 500,000 Year 3 100,000 300,000| 350,000 500,000 Year 4 100,000 400,000 450,000 950,000 Year 5…
Wonder Plc is considering two investment projects in another city and the estimated cash flows are as follows: Year Hotels Housing £ (m) £ (m)0 Capital outlay (200) (250) Net cash flows1 130 1302 60 1203 80 1204 100 804 Residual value 20 40The company’s cost of capital is 15%.Required: Assess the viability of these two projects using NPV and Payback period as the appraisal techniques…
We are analyzing a project and have gathered the following data. Based on this data, what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project. Year Cash Flow Net Income 0 $285,000 n/a 1 $83,650 $12,400 2 $92,850 $21,600 3 $94,350 $23,100 4 $93,250 $22,000
[The following information applies to the questions displayed below.} Project Y requires a $313,500 investment for new machinery with a four-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project Y $ 380,000 170, 240 78, 375 27,000 $ 104,385 3. Compute Project Y's accounting rate of return. Project Y Numerator: Accounting Rate of Return Denominator: Accounting Rate of Return 0
Calculating IRR, payback, and a missing cash flow. the merriweather printing company is trying to decide on the merits of constructing a new publishing facility. The project is expected to provide a series of positive cash flows for each of the next four years. The estimated cash flows associated with this project are as follows. year. Project cash flows 0 ? 1 $780,000 2 $420,000 3 $310,000 4 $480,000 if you know that the project has a regular payback of 2.6 years, what is the project's IRR?
Required information [The following information applies to the questions displayed below.] Project Y requires a $331,500 investment for new machinery with a five-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1. EV of $1. PVA of $1. and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Project Y Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income 3. Compute Project Y's accounting rate of return. Numerator: Accounting Rate of Return Denominator: Project Y $ 400,000 179,200 66,300 29,000 $ 125,500 Accounting Rate of Return
A company needs to decide if it will move forward with two new products that it is evaluating. The two initiatives have the following cash flow projections: Project A Year 0 1 2 3 4 Cash Flow -800,000 220,000 265,000 292,000 317,000 Project B Year 0 1 2 3…
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,500 $23,000 $5,500 $61,000 Beta Project 8,000 23,000 28,000 59,000 (Click here to see present value and future value tables) https://openstax.org/books/principles-managerial-accounting/pages/time-value-of-money A. If the discount rate is 12%, compute the NPV of each project. Round your present value factor to three decimal places and final answer to answer to 2 decimal places. Alpha Project...? Beta Project...?
A.) ABC inc. is considering investing in a new project with an initial cost of $500,000. The project is expected to generate cash flows of $100,000 per year for hte next fire years. After five years, the project will have a residual value of $50,000. Calculate the accounting rate of retrn (ARR) for this investment. B.) Given that the calculated ARR for this investment is 18% provide a critical analysis of whether ABC Inc. Should proceed with this project. Consider the strengths and weaknesses of using ARR as an investment appraisal method and discuss any other financial and non financial factors that ABC Inc. should take into account when making this investment decision.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS