Part B: Solve the following excersises: 1. A company is considering two mutually exclusive projects X and Y. Each require an initial investment of OMR 100,000.The after tax cash inflows associated with each project are as follows: Year Project X Cash flows Project Y Cash flows (Initial Investment) 120,000 120,000 1 25,000 20,000 2 ? ? 3 ? 4 ? 5 (a) Complete the table where Payback period for Project X is 3.5 and for project Y is 4. (b) Which project is better?

Part B: Solve the following excersises: 1. A company is considering two mutually exclusive projects X and Y. Each require an initial investment of OMR 100,000.The after tax cash inflows associated with each project are as follows: Year Project X Cash flows Project Y Cash flows (Initial Investment) 120,000 120,000 1 25,000 20,000 2 ? ? 3 ? 4 ? 5 (a) Complete the table where Payback period for Project X is 3.5 and for project Y is 4. (b) Which project is better?

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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ZumBahlen Inc. is considering the following mutually exclusive projects: Year 0 1 2 3 4 Project A Cash Flow -$5,000 O a. 16.15% O b. 20.15% O c. 18.15% O d. 22.15% 200 800 Project B Cash Flow -$5,000 3,000 3,000 3,000 5,000 At what cost of capital will the net present value of the two projects be the same? (That is, what is the "crossover" rate?) 800 200
The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (1) Cash Flow (II) 0 123 -$ 73,000 33,000 33,000 3 33,000 -$ 17,100 9,250 9,250 9,250 a-1.If the required return is 11 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project I Project II - If the company applies the profitability index decision rule, which project should the 2. firm accept? O Project I O Project II b- What is the NPV for both projects? (A negative answer should be indicated by a 1. minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project I Project II
Consider the following projects: Cash Flows ($) Co -10,000 -20,000 Project D E Assume that the projects are mutually exclusive and that the opportunity cost of capital is 10%. a. Calculate the profitability index for each project. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project D E Profitability Index C1 20,000 35,000 b-1. Calculate the profitability-index using the incremental cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Profitability-index
The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (1) Cash Flow (II) -$ -$ 0 55,000 1 25,000 2 25,000 3 25,000 a-1. If the required return is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project I Project II 18,900 10,150 10,150 10,150 a- If the company applies the profitability index decision rule, which project should the 2. firm accept? Project I O Project II Project I Project II 1. b- What is the NPV for both projects? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Given the cash flows of the following two project, which project should the company choose if the company can choose only one of the projects? The cost of capital is 11 percent. Year Project A Project B 0 -$200 -$200 1 80 100 2 80 100 3 80 100 4 80 Options: Project A Project B
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$425,000 44,000 62,000 79,000 540,000 -$40,000 20,400 13,300 18,600 15,400 2 4 The required return on these investments is 10 percent. a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) e. Based on your answers in (a) through (d), which project will you finally choose? a. Project A Project B b. Project A Project B c. Project A years years % Project B % d. Project A…
Consider two mutually exclusive projects, A and B, whose costs and cash flows are shown in the following table: Year Project A Project B 1 $(15,000) $(22,840) 2 9,000 8,000 3 8,000 8,000 4 2,500 8,000 5 3,000 8,000 Calculate the cross over rate. Please use equations not just excel
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -$ 15,900 -$ 15,900 1 6,710 7,290 2 7,290 7,730 3 4,810 3,630 a. What is the IRR of Project X? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim b. What is the IRR of Project Y? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim c. What is the crossover rate for these two projects? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim a. IRR b. IRR % % c. Crossover rate %
C 5) A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: Project A Project B Initial Investment $40,000 End-of-Year Cash Flows $20,000 20,000 20,000 Year 0 a) If the firm in the table above has a required payback of two (2) years, determine the projects which should be accepted / rejected? Discuss briefly. -$1,000,000 Initial Investment $90,000 b) Assume that the new financial analyst does not like the payback approach and determines that the firm's required rate of return is 15 percent. What do you expect about his recommendation? Discuss briefly. $100,000 (Initial outlay) Year 1 End-of-Year Cash Flows $40,000 40,000 80,000 Year 5 Operating Cash Inflows Year 2 Year 3 Year 6 $250,000 $100,000 $500,000 $100,000 $600,000 Year 4
The following are the cash flows of two projects: Year 0 1 2 3 4 Project A $ (220) 100 100 100 100 Project B $ (220) 120 120 120 What are the internal rates of return on projects A and B? Note: Enter your answers as a percent rounded to 2 decimal places. Project A B IRR % %
1. The Bolster Company is considering two mutually exclusive projects: Year Cash Flow A Cash Flow B -$100,000 31,250 31,250 -$100,000 1 2 3 31,250 31,250 31,250 4 5 200,000 The required rate of return on these projects is 12%.

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