Management of Blossom, Inc., is considering investing in three independent projects. The costs and the cash flows are given in thefollowing table. The appropriate cost of capital is 13.00 percent.Year01234Project 1-$250,00056,70076,50076,50090,000Project 2-$324,000The IRR of project 1 is157,925160,750100,800Project 3-$480,000214,500Blossom should accept project(s)214,500214,500Compute the project IRRs. (Round final answers to 2 decimal places, e.g. 15.25%.)214,500Identify the projects that should be accepted.%, project 2 is%, and project 3 is

The internal rate of return (IRR) is a financial metric used to evaluate the profitability of an…

Answered: Management of Blossom, Inc., is…

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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Eddie Corporation is considering the following three investment projects (Ignore income taxes.): Project D $ 65,600 $ 76,096 Multiple Choice Investment required Present value of cash inflows Rank the projects according to the profitability index, from most profitable to least profitable. O E, C, D E, D, C D, C, E Project C $ 57,600 $ 63,936 C, E, D. Project E $ 136,000 $ 148,240
Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 8 9 10 Required: Operating Income $62,000 62,000 62,000 62,000 62,000 $310,000 Each project requires an investment of $620,000. Straight-line depreciation.will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 10% 15% 0.943 0.909 0.870 0.890 0.826 0.756 0.840 0.751 0.658 0.792 0.683 0.636 0.572 0.747 0.621 0.567 0.497 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 0.627 0.467 0.404 0.327 0.592 0.361 0.284 0.558 0.322 0.247 Front-End Loader Greenhouse 0.424 Net Cash Flow $187,000 187,000 187,000 0.386 187,000 187,000 $935,000…
Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Net Cash Year Project 1 Flows Project 2 Initial investment $ (60,000) $ (60,000) 1. 30,000 35,000 2. 3. 30,000 5,000 20,000 20,000 a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred? Complete this question by entering your answers in the tabs below. Required A Required B Compute net present value for each project. Based on net present value, which project is preferred? (Round your present value factor to 4 decimals. Round your final answers to the nearest whole dollar.) Net Cash Flows Present Value Factor Present Value of Net Cash Flows Project 1 Year 1 Year 2
Subject: accounting
Required: 1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place. Average Rate of Return Greenhouse Front-End Loader 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, round to the nearest dollar. Front-End Loader Greenhouse Present value of net cash flow Amount to be invested Net present value 2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments. The front-end loader has a net present value because would be the more attractive. cash flows occur earlier in time compared to the greenhouse. Thus, if only one of the two projects can be accepted, the
Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table. Project A Project B Initial Investment -$80,000 -$50,000 Year Cash Flow Cash Flow 1 $15,000 $15,000 2 $20,000 $15,000 3 $25,000 $15,000 4 $30,000 $15,000 5 $35,000 $15,000 a.) calculate each project's payback period. b.) calculate the net present value for each project. c.) calculate the internal rate of return for each project. d.) draw the net present value profiles for both projects on the same set of axes and discuss any conflict in ranking that may exist between NPV and IRR. e.) Summarize the preferences dictated by each measure and indicate which project you would recommend. Explain why.
Gonzalez Company is considering two new projects with the following net cash flows. The company's required rate of return on investments is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Year Initial investment 1. 2. 3. Net Cash Flows Project 1 $(60,000) 15,000 27,400 22,000 Project 2 $(55,500) 35,000 15,000 22,000 a. Compute payback period for each project. Based on payback period, which project is preferred? b. Compute net present value for each project. Based on net present value, which project is preferred?
Duo Corporation is evaluating a project with the following cash flows: Year Cash Flow 0 −$ 29,800 1 12,000 2 14,700 3 16,600 4 13,700 5 −10,200 The company uses an interest rate of 9 percent on all of its projects. Calculate the MIRR of the project using the reinvestment approach Calculate the MIRR of the project using the combination approach.
The Canary Company is looking to invest in a new project. They have narrowed it down to two potential projects – A and B. The data on investment and cash flows for each project is outlined below. Project Initial Investment Year One Year Two Year Three Year FourProject A $450,000 $200,000 $225,000 $275,000 $200,000Project B $500,000 $150,000 $200,000 $300,000 $250,000 The appropriate discount rate for each project is 16%. With this information, determine the following information: • NPV of cash flows for each project• Profitability index for each project Based on your calculations, which project do you select and why?
Romanos Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Laura Berenstein, staff analyst at Romanos, is preparing an analysis of the three projects under consideration by Chester Romanos, the company's owner. Data Table A B C D 1 Project A Project B Project C 2 Projected cash outflow 3 Net initial investment $3,000,000 $2,100,000 $3,000,000 4 Projected cash inflows 5 Year 1 $1,200,000 $1,200,000 $1,700,000 6 Year 2 1,200,000 600,000 1,700,000 7 Year 3 1,200,000 500,000 200,000 8 Year 4 1,200,000 100,000 9 Required rate of return 10% 10% 10% 1. Because the company's cash is limited, Romanos thinks the payback method should be used to choose between the capital budgeting projects. a. What are the…
Halls Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Laura Bentley, staff analyst at Halls, is preparing an analysis of the three projects under consideration by Caden Halls, the company's owner. Data Table A B C D 1 Project A Project B Project C 2 Projected cash outflow 3 Net initial investment $3,000,000 $2,100,000 $3,000,000 4 Projected cash inflows 5 Year 1 $1,200,000 $1,200,000 $1,700,000 6 Year 2 1,200,000 600,000 1,700,000 7 Year 3 1,200,000 500,000 200,000 8 Year 4 1,200,000 100,000 9 Required rate of return 6% 6% 6 1.. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Halls choose?. Ignore income taxes. (Round your answers to…

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