Perkins Corporation is considering several investment proposals, as shown below:Investment requiredNet present valueA$128,000Investment ProposalBC$ 160,000$ 96,000$153,600$ 240,000$ 134,400If the profitability index is used, the ranking of the projects from most to least profitable would be:A, C, B, DD, B, C, AB, D, C, AB, D, A, CD$ 120,000$264,000

Step 1: Step 2: Step 3: Step 4:

Answered: Perkins Corporation is considering…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Below are four cases that you will have to solve using Excel spreadsheets. 1st case The company COMERCIAL SA has two investment alternatives that present the following information: PROJECT A B It is requested Initial investment. $25,000 $22,000 Cash flows year 1 1. Determine the internal rate of return. 2. Determine the present value. $7,000 $12,000 The discount rate for the project will be 10% and the MARR will be 20%. 3. Determine the recovery period. 4. Define which is the most viable project. Year 2 cash flows $15,000 $8,000 Year 3 cash flows $18,000 $12,000
Consider the following two projects: Cash flows Project A Project B C0�0 −$ 240 −$ 240 C1�1 100 123 C2�2 100 123 C3�3 100 123 C4�4 100 a. If the opportunity cost of capital is 8%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 8%. c. Which one would you choose if the cost of capital is 16%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h. If the opportunity cost of capital is 8%, what is the profitability index for each project? i. Is the project with the highest profitability index also the one with the highest NPV? j. Which measure should you use to choose between the projects?
You are evaluating an investment project, which has a cost of $161,000 today and is expected to provide after-tax annual cash flows of $20,000 for seven years. In order to compute the MIRR, you are modifying the cash flows. Assuming the cost of capital is 9.1 percent, what is the terminal cash flow of the modified cash flows? Question 12 options: $173,074 $176,474 $178,474 $180,974 $182,874 $184,574
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
Suppose there are two potential projects for investment. Project 1 has a certain payoff of $50 in one year, while project 2 has a 50% chance of generating $100 in one year, and another 50% chance of generating $0 in one year. Suppose the company has an outstanding debt = $50. (1)Which project will shareholders prefer? Justify your answer. (2)Which project will debt holders prefer? Justify your answer. (3)Which project will the financial manager prefer? Justify your answer.
2. A firm considers investing in a project. In Year 0 it needs to make an investment of $50,000. If it is expected to earn $50,000, $60,000, $70,000 in years 1,2,3 respectively, decide whether the firm should make the investment. Consider the required rate of return of 8%. You may use xis to make calculations. Make recommendations for both cases.
Suppose your firm is considering Investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time Cash Flow Multiple Choice $-24013, reject -1,000 Use the NPV decision rule to evaluate this project; should it be accepted or rejected? $835 86, accept $759 87, accept $1,835.86 accept 2 400 200 3 600 4 600 5 200 6 600
Pecos Corporation is considering several investment proposals, as shown below: Investment required Present value of future net Investment Proposal OD, B, C, A O B, D, C, A OB, D, A, C O A, C, B, D A B $ 80,000 $ 100,000 C $ 60,000 D $ 75,000 cash flows $ 96,000 $ 150,000 $ 84,000 $ 120,000 If the project profitability index is used, the ranking of the projects from most to least profitable would be:
Information on four investment proposals is given below: Investment required. Present value of cash inflows Net present value Life of the project Answer is complete but not entirely correct. Profitability Index Investment Proposal ABCO A В Required: 1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference. с D 3 0.41 0.38 0.50 0.33 Rank Preference A $ (240,000) 337,300 $ 97,300 Second Third First Fourth ✓ ✔ 5 years Investment Proposal $ (73,500) 110,250 $36,750 B $ (105,000) 144,900 $ 39,900 7 years 6 years $ (126,000). 168,000 $ 42,000 6 years
Internal rate of return and modified internal rate of return. Quark Industries has three potential projects, all with an initial cost of $1,900,000. Given the discount rate and the future cash flow of each project, what are the IRRs and MIRRs of the three projects for Quark Industries? Cash Flow Project M Project N Project O Year 1 $500,000 $600,000 $1,000,000 Year 2 $500,000 $600,000 $800,000 Year 3 $500,000 $600,000 $600,000 Year 4 $500,000 $600,000 $400,000 Year 5 $500,000 $600,000 $200,000 Discount rate 9% 13% 16% What is the IRR for project M?
The following information is available on two mutually exclusive projects. Project Year 0 Year 1 Year 2 Year 3 Year 4 A -$700 $200 $300 $400 $500 B -$700 $600 $300 $200 $100 If the required rate of return is 10%, which project should be selected using the net present value (NPV) method? Group of answer choices A B
Given the financial data for four mutually exclusive alternatives in the table below, determine the best alternative using the incremental rate of return (∆RoR) analysis. MARR =10%.

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