NPV, IRR, and NPV profiles Thomas Company is considering two mutually esd sive projects. The firm, which has a 12% cost of capital, has estimated its cash P10-23 as shown in the following table. Project A Project B Initial investment (CFo) -S130,000 -S85,000 Year (r) Cash inflows (CF) $25,000 S40,000 2. 35,000 35,000 45,000 50,000 55,000 30,000 4. 10,000 5n 5,000 a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. c. Draw the NPV profiles for both projects on the same set of axes. d. Evaluate and discuss the rankings of the two projects on the basis of your find- ings in parts a, b, and c. e. Explain your findings in part d in light of the pattern of cash inflows associatel with each project.

NPV, IRR, and NPV profiles Thomas Company is considering two mutually esd sive projects. The firm, which has a 12% cost of capital, has estimated its cash P10-23 as shown in the following table. Project A Project B Initial investment (CFo) -S130,000 -S85,000 Year (r) Cash inflows (CF) $25,000 S40,000 2. 35,000 35,000 45,000 50,000 55,000 30,000 4. 10,000 5n 5,000 a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. c. Draw the NPV profiles for both projects on the same set of axes. d. Evaluate and discuss the rankings of the two projects on the basis of your find- ings in parts a, b, and c. e. Explain your findings in part d in light of the pattern of cash inflows associatel with each project.

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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with cashflow diagram
A company is analyzing two mutually exclusive projects, S and L, with thefollowing cash flows: The company’s WACC is 8.5%. What is the IRR of the better project? (Hint: The better projectmay or may not be the one with the higher IRR.)
Task 1: The firm has provided the following financial data: Cost of equity is 13.5%. Net income is €2,500. The firm is considering the following investment projects: Size of project IRR of project €1,000 12.0% €1,200 €1,200 €1,200 €1,000 ● ● Project A B C D E Target capital structure is 50% debt and 50% equity. After-tax cost of debt is 8%. 11.5% 11.0% 10.5% 10.0% 1) Determine the firm's weighted average cost of capital. 2) Identify the project(s) that the firm should accept. 3) Identify the total capital budget. 4) If the firm follows a residual dividend policy, determine its payout ratio.
klp.2
Multiple choice: Assuming that SN North Company has the following net cash inflow: P60,000, P55,000, P50,000, and P45,000 for years 1, 2, 3, and 4, respectively. Assuming further that the company’s cost of capital is 25% for a net cost of investment of P120,000, the net present value, rounded off to the nearest whole number, is equivalent to: • P7,000• P7,300• P7,200• P7,100
Subparts E, F and G please.
Your division is considering two projects with the following cash flows (in millions): Year 1 3 $5 $17 $10 $6 5% Project A -$25 Project B -$20 a. What are the projects' NPVs assuming that the WACC is 5%, 10%, and 15%? WACC NPV-A NPV-B WACC 10% 0 15% 2 NPV-A $10 $9 NPV-B b. What are the projects' IRRs? c. If the WACC was 10%, ad A and B were mutually exclusive projects, which project would you choose?
Net Present Value Method, Present Value Index, and Analysis First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $863,421 $519,486 $311,214 Annual net cash flows: Year 1 358,000 243,000 165,000 Year 2 333,000 219,000 114,000 Year 3 304,000 194,000 83,000 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 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 6%,…
Payback and NPV Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital. Calculate each project’s payback period. Which project is preferred according to this method?
Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firm’s cost of capital, r, is 10%, and the risk-free rate, RF, is 2%. The firm has estimated each project’s cash flow and each project’s beta, as shown in the following table. Project (j) E F G Initial investment (CF0) -$15,000 -$11,000 -$19,000 Year (t) Cash inflows (CFt) 1 $6,000 $6,000 $ 4,000 2 6,000 4,000 6,000 3 6,000 5,000 8,000 4 6,000 2,000 12,000 Beta 1.80 1.00 0.60 a. Find the NPV of each project, using the firm’s cost of capital. Which project is preferred in this situation? b. The firm uses the following equation to determine the risk-adjusted discount rate, RADRj, for each project j: RADRj = RF + Bj x (rm -RF) Where RF = risk-free rate 2% Bj = beta of project j RADRj = risk-adjusted discount rate for project j rm = expected return on market portfolio 10% Substitute each project’s beta into this equation to determine its RADR. c. Use the RADR for each project to…
Projects 1 and 2, of equal risk, are alternatives for expanding X Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table: Project 1 Project 2 Initial investment $60,000 $30,000 Year Cash inflows 1 $10,000 $10,000 2 $15,000 $10,000 3 $20,000 $10,000 4 $25,000 $10,000 5 $30,000 $10,000 Your Answer: (Round to two decimal places.) a. The payback period of Project 1 is The payback period of Project 2 is b. The NPV of Project 1 is $ The NPV of Project 2 is $ c. The IRR of Project 1 is The IRR of Project 2 is d. Which project will you recommend? Project %. %. years. years.
A firm's cost of capital is 10%.It is considering two mutually exclusive projects X and Y.The details are given below: Project X Project Y PV factor at 10%Investments Rs.1,40,000 Rs.1,40,000 - Net cash inflows: Years 1 20,000 1,20,000 0.909 2 40,000 80,000 0.826 3 60,000 40,000 0.751 4 90,000 20,000 0.683 5 1,20,000 20,000 0.621 3,30,000 2,80,000 Calculate payback period and net present value of each project.

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