Management of Ivanhoe Measures, Inc., is evaluating two independent projects. The company uses a 13 percent discount rate for suchprojects. The costs and cash flows for the projects are shown in the following table.YearProject 1Project 20$8,812,840-$10,781,20013,363,4002,021,33021,788,2903,848,80031,367,6003,173,09041,088,9004,104,31051,111,3804,130,78061,723,94071,319,290kAWhat are their NPVs? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round otherintermediate calculations and final answer to O decimal places, e.g. 1,525.)QAcThe NPV of Project 1 is $and the NPV of Project 2 is $QuMu

NPV or Net present value = Present value of positive cash flow - Present value of negative cash…

Answered: Management of Ivanhoe Measures, Inc.,…

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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Question: Altro Corporation is considering the following three investment projects: Project R Project S Project T Investment required $33,000 Present value of cash inflows $33,333 Required: $40,000 $46,800 $97,000 $112,520 Rank the projects according to the profitability index, from most profitable to least profitable. (Ignore income taxes in this problem)
Duo Corporation is evaluating a project with the following cash flows: Year Cash Flow 0 1 2 3 4 5 The company uses an interest rate of 9 percent on all of its projects. Calculate the MIRR of the project using the discounting approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) MIRR -$ 29,500 11,700 14,400 16,300 13,400 -9,900 MIRR Calculate the MIRR of the project using the reinvestment approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % MIRR % Calculate the MIRR of the project using the combination approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) %
Prominent Sdn Bhd invested in two projects, project Alpha and project Beta. The projects are independent of each other. The following schedule shows the cash flows for each project. Year Project Alpha Project Beta 0 -10,000 -10,000 1 5,000 1,000 2 4,000 2,000 3 2,000 2,000 4 2,000 3,000 5 1,000 6,000 The following schedule shows the profit for each project. Year Project Alpha Project Beta 0 0 0 1 2,000 1,000 2 2,000 1,000 3 2,000 2,000 4 2,000 2,000 5 2,000 4,000 The discount rate is 10%. Additional information : Appraisal method 1: Rate of return : Year Project Alpha Project Beta 1 2,000 1,000 2 2,000 1,000 3 2,000 2,000 4 2,000 2,000 5 2,000 4,000 total profit 10000 10000 average annual profit (total profit / number of years) 2000 (10000/5) 2000 (10000/5) initial investment 10000 10000 accounting rate of return = average annual profit initial investment * 100 20%…
Prominent Sdn Bhd invested in two projects, project Alpha and project Beta. The projects are independent of each other. The following schedule shows the cash flows for each project. Year Project Alpha Project Beta 0 -10,000 -10,000 1 5,000 1,000 2 4,000 2,000 3 2,000 2,000 4 2,000 3,000 5 1,000 6,000 The following schedule shows the profit for each project. Year Project Alpha Project Beta 0 0 0 1 2,000 1,000 2 2,000 1,000 3 2,000 2,000 4 2,000 2,000 5 2,000 4,000 The discount rate is 10%. Additional information : Appraisal method 1: Rate of return : Year Project Alpha Project Beta 1 2,000 1,000 2 2,000 1,000 3 2,000 2,000 4 2,000 2,000 5 2,000 4,000 total profit 10000 10000 average annual profit (total profit / number of years) 2000 (10000/5) 2000 (10000/5) initial investment 10000 10000 accounting rate of return = average annual profit initial investment * 100 20%…
Providence Health is evaluating two different linen supply vendors systems for handling facility linen replacement. There are no incremental revenues attached to the projects, so the decision will be made on the basis of the present value of costs. Providence's weighted average cost of capital is 6.25%. Here are the net cash flow estimates in thousands of dollars: Year 0 1 2 3 4 5 System X System Y S (1,800) $ (3,850) S (1,000) S (500) (1,000) S (500) S S (1,000) S S (1,000) S S (1,000) S (500) (500) (500) [a] Assume initially that the systems both have average risk. Which one should be chosen? [b] Assume that System Y is judged to have high risk. The organization accounts for differential risk by adjusting its corporate cost of capital
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Present Value of Life of the Project A Investment Required Cash Inflows Project Internal Rate (years) of Return $ 160,000 $ 259,323 7 16% B $ 135,000 $ 232,000 12 18% $ 100,000 $ 190,035 7 D $ 164,000 $ 268,136 3 22% 17% The net present values should be computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth. Required: 1. Compute the profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return. Complete this question by entering your answers in the tabs below. Required 1 Required 2 In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return. Net Present Value Profitability…
Cooney Co. is evaluating the following mutually exclusive projects. The manager has determined that the appropriate discount rate is 6.2% for all the recommended projects. Rank order the projects based on the profitability index. Project A Project B Project C (35,000) (65,000) (86,000) Year 0 1 2 3 55,000 40,000 22,000 22,000 44,000 44,000 35,000
Project R delegates all the development work to outside companies. The estimated cashflows for Project R are (where brackets indicate expenditure): Beginning of Year 1 Beginning of Year 2 Beginning of Year 3 End of Year 3 (£150,000) (£250,000) (£250,000) £1,000,000 (contractors' fees) (contractors' fees) (contractors' fees) (sales) Project S carries out all the development work in-house by purchasing the necessary equipment and using the company's own staff. The estimated cashflows for Project S are: Beginning of Year 1 Continuous payments Through Year 1 Continuous payments Through Year 2 Continuous payments Through Year 3 End of Year 3 (£150,000) (£75,000) (£250,000) (£250,000) £1,000,000 (New equipment) (Staff Cost) (Staff Cost) (Staff Cost) (sales) a) Calculate the net present value for Project R and Project S using a risk discount rate of 20% per annum. Using net present values as a criterion, which project is preferable? b) Find the internal rate of return for Project R and…
Cooney Co. is evaluating the following mutually exclusive projects. The manager has determined that the appropriate discount rate is 6.20% for all the recommended projects. Rank order the projects based on the net present value. Project A Project B Project C (35,000) (65,000) (86,000) Year 0 1 2 3 55,000 40,000 22,000 22,000 44,000 44,000 35,000
Ocean Pacific Restaurant is evaluating two mutually exclusive projects for expanding the restaurant’s seating capacity. The relevant cash flows for the projects are shown in the following The firm’s cost of capital is 4%. Assess the acceptability of each project on the basis of the IRRs found in part
The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $1,104,000. The estimated net cash flows from each project are as follows: Net Cash Flow Year OfficeExpansion Server 1 $308,000 $407,000 2 308,000 407,000 3 308,000 407,000 4 308,000 407,000 5 308,000 6 308,000 The committee has selected a rate of 15% for purposes of net present value analysis. It also estimates that the residual value at the end of each project's useful life is $0, but at the end of the fourth year, the office expansion's residual value would be $385,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5…
The cash flows for two small raw water treatment systems are shown. Determine whichshould be selected on the basis of an annual worth analysis at 10% per year interest. *please answer in a neat and clear way.

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