Pitt Company is considering two alternative investments. The company requires a 12% return from its investments. Neither option has a salvage value. Project X Project Y Initial investment $253,611 $179,492 Net cash flows anticipated: Year 1 81,000 34,000 Year 2 59,000 55,000 Year 3 92,000 72,000 Year 4 82,000 69,000 Year 5 75,000 26,000 A. Compute the IRR for both projects using the IRR spreadsheet function. Project X Project Y % B. Which project should be recommended.

Pitt Company is considering two alternative investments. The company requires a 12% return from its investments. Neither option has a salvage value. Project X Project Y Initial investment $253,611 $179,492 Net cash flows anticipated: Year 1 81,000 34,000 Year 2 59,000 55,000 Year 3 92,000 72,000 Year 4 82,000 69,000 Year 5 75,000 26,000 A. Compute the IRR for both projects using the IRR spreadsheet function. Project X Project Y % B. Which project should be recommended.

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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Caves Beach Tiles is reviewing a capital investment proposal. The initial cost of the project and the net cash flows for each year are presented in the table below It is estimated that there would be no salvage value at the end of the investment's life. Year Initial cost and carrying value Annual net cash flows Annual net profit 0 150,000 1 70,000 50,000 15,000 2 42,000 45,000 17,000 3 21,000 40,000 19,000 4 7,000 35,000 21,000 5 |0 30,000 23,000 Caves Beach Tiles uses a rate of return of 8.5% to evaluate capital investment projects. REQUIRED: (a) Calculate the internal rate of return of the project (b) Should the project be accepted and why? (c) List three reasons why it is important for management to analyze capital expenditure projects.
[The following information applies to the questions displayed below.} Project Y requires a $313,500 investment for new machinery with a four-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project Y $ 380,000 170, 240 78, 375 27,000 $ 104,385 3. Compute Project Y's accounting rate of return. Project Y Numerator: Accounting Rate of Return Denominator: Accounting Rate of Return 0
The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted. Project A Project B Project C Initial Cost 240,000.00 260,000.00 200,000.00 Expected life 5 5 4 Scrap value expected 10,000.00 15,000.00 10,000.00 Expected Cash Inflows: End Year 1 85,000.00 95,000.00 45,000.00 End Year 2 70,000.00 70,000.00 65,000.00 End Year 3 65,000.00 55,000.00 95,000.00 End Year 4 60,000.00 50,000.00 100,000.00 End Year 5 50,000.00 50,000.00 The company estimates cost of capital is 18%. The table below shows the present value of $1 at 14%, 18% and 22%. Periods 14% 18% 22% 1 0.877 0.847 0.820 2 0.769 0.718 0.672 3 0.675 0.609 0.551 4 0.592 0.516 0.451 5 0.519 0.437 0.370 6 0.456 0.370 0.303 Required: Calculate:(b) The accounting rate of return for each…
Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows. Project Investment AnnualIncome Life ofProject 22A $243,600 $17,130 6 years 23A 271,500 20,700 9 years 24A 280,600 15,700 7 years Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Iggy Company uses the straight-line method of depreciation.(a) Determine the internal rate of return for each project. (Round answers 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Project Internal Rate ofReturn 22A % 23A % 24A % If Iggy Company’s required rate of return is 11%, which projects are acceptable?
Garcìa Co. can invest in one of two alternative projects. Project Y requires a $360,000 initial investment for new machinery with a four-year life and no salvage value. Project Z requires a $360,000 initial investment for new machinery with a three-year life and no salvage value. The two projects yield the following annual results. Cash flows occur evenly within each year. Required 1. Compute each project's annual net cash flows. 2. Compute each project's payback period. If the company bases investment decisions solely on payback period, which project will it choose? 3. Compute each project's accounting rate of return. If the company bases investment decisions solely on accounting rate of return, which project will it choose? 4. Compute each project's net present value using 8% as the discount rate. If the company bases investment decisions solely on net present value, which project will it choose?
The management of SARB Limited must choose between two projects to expand their business operations. The twoprojects are called Project FIC and Project PA. Each project requires an initial investment of R250 000. No scrap values are expected.You have been presented with the following information: PROJECT FICProject FIC has net cash inflows of R63000 for each of the five years of the projects lifespan. PROJECT PAProject PA is a five-year project with annual profit of R8000, R18000, R12000, R20000 and R7000 for years one to fiverespectively.The required rate of return is 15%. Depreciation is calculated using the straight-line method.Calculate Accounting Rate of Return of Project PA (answer rounded off to 2 decimal places)
ZLX is evaluating an investment and has generated the following: Initial investment at time t=0 is $2,000,000 Life of project is 8 years Initial investment depreciated to $0 via straight-line over entire life NWC investment required = $0.00 Expected market salvage value of investment assets = $0.00 Starting 1-year from today, and remaining constant over project life: Incremental sales as a result of investment = $1,600,000 / year Incremental expenses as a result of investment = $1,100,000 / year firm' tax rate = 28% What is the IRR of this investment? Enter rate in decimal form, rounded to fourth digit, as in "0.1234"
The management of NUBD Co. is considering three investment projects-W, X, and Y. Project W would require an investment of P21,000, Project X of P66,000, and Project Y of P95,000. The present value of the cash inflows would be P22,470 for Project W, P73,920 for Project X, and P98,800 for Project Y. Rank the projects according to the profitability index, from most profitable to least profitable. *
If a copy center is considering the purchase of a new copy machine with an initial investment cost of $145,800 and the center expects an annual net cash flow of $18,000 per year, what is the payback period? years
Pitt Company is considering two alternative investments. The company requires a 12% return from its investments. Neither option has a salvage value. Project X Project Y Initial investment $241,666 $181,884 Net cash flows anticipated: Year 1 81,000 36,000 Year 2 59,000 55,000 Year 3 93,000 73,000 Year 4 80,000 68,000 Year 5 75,000 27,000 A. Compute the IRR for both projects using the IRR spreadsheet function. Project X fill in the blank 1% Project Y fill in the blank 2% B. Which project should be recommended.
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Tiffany Co. is analyzing two projects for the future. Assume that only one project can be selected. Project Y Project X Cost of machine P680,000 P600,000 Net cash flow: Year 1 240,000 40,000 Year 2 240,000 260,000 Year 3 240,000 260,000 Year 4 0 200,000 If the company is using the payback period method and it requires a payback of three years or less, which project should be selected? Group of answer choices Project Y. Project Y because it has a lower initial investment. Both X and Y are acceptable projects. Project X. Neither X nor Y is an acceptable project.

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