Management of Wildhorse Measures, Inc., is evaluating two independent projects. The company uses a 10.8 percent discount rate forsuch projects. The costs and cash flows for the projects are shown in the following table.YearProject 1Project 20- $8,725,375-$12,004,14712,913,7902,073,13021,897,5903,504,99031,455,0003,349,18041,137,0003,776,40051,249,3804,134,08061,594,74071,304,690a. What are the IRRs for the projects? (Round answers to 3 decimal places, e.g. 15.257%.)The IRR of Project 1 is%, and the IRR of Project 2 is%.b. Does the IRR criterion indicate a different decision than the NPV criterion?

Step 1: Introduction to capital budgetingCapital budgeting refers to the process of analyzing…

Answered: Management of Wildhorse 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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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…
Select all that are true with respect to historical data on risk and return in the U.S. financial markets since about 1926, Group of answer choices A portfolio of small stocks has earned higher returns than large stocks, with less risk A portfolio of small stocks has earned higher returns that large stocks, with higher risk Stocks have outperformed government bonds, albeit with higher risk With respect to a diversified stock portfolio, the longer the holding period, the higher the risk. With respect to a diversified stock portfolio, the longer the holding period, the lower the risk.
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
Sheridan Mills management is evaluating two alternative heating systems. Costs and projected energy savings are given in the following table. The firm uses 11.50 percent to discount such project cash flows. Year System 100 System 200 0 –$1,982,100 –$1,854,200 1 206,910 763,700 2 429,830 589,800 3 743,040 671,900 4 1,046,900 426,300 What is the NPV of the systems? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors and intermediate calculations. Round final answers to 0 decimal places, e.g. 5,275.)
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Project A B C D Investment Required $ 150,000 $ 129,000 $ 103,000 $ 160,000 Present value of Cash Inflows $ 274,323 $ 247,000 $ 205,035 $ 283, 136 Required 1 Required 2 Project Life of 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. A B C D the Internal Rate of Return 15% 20% 19% 18% 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. Project (years) 7 12 Complete this question by entering your answers in the tabs below. Profitability Index 7 3 Compute the profitability index for each project. (Round your answers to 2 decimal places.)
Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, that both cost $100,000. The company's board of directors has set a 4-year payback requirement the cost of capital is 10%. The project cash flows are shown in the following table: Cash flows (CF Subscript t) Year Project A Project B 1 $30,000 $85,000 2 $30,000 $50,000 3 $30,000 $10,000 4 $30,000 $10,000 5 $30,000 $10,000 6 $30,000 $10,000 a. Calculate the payback period for each project. Rank the projects by payback period. b. Calculate the NPV of each project. Rank the project by NPV. c. Calculate the IRR of each project. Rank the project by IRR. d. Make a recommendation.
he cash flows associated with a public works project in Buffalo, New York, are shown. Use the modified B/C ratio at a discount rate of 5% per year to determine the economic justification. First cost, $ 30,000,000 AW of benefits, $/year 7,700,000 AW of disbenefits, $/year 1,700,000 M&O costs, $/year 1,525,000 Life of project, years 30 The modified B/C ratio is . The project is economically (Click to select) justified not justified .
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Pharoah Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $901,000, and project B's cost is $1,268,100. Cash flows from both projects are given in the following table. Year Project A $86,212 1 2 3 4 313,562 427,594 285,552 Project B $586,212 413,277 231,199 What are their discounted payback periods? (Round answers to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0.00 for the answer.) Discounted payback period of project A Pharoah should choose Discounted payback period of project B Which will be accepted with a discount rate of 8 percent?

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