PROBLEM 9-10 INDEPENDENT CASH FLOW AND CAPITAL BUDGETING UNDER UNCERTAINTIESCable Corporation has determined the following discrete probability distributions for the netcash flow generated by acontemplated project.Period 1Probability0.100.250.300.250.10Cash Flow4,0005,0006,0007,0008,000Period 2Probability0.100.250.300.250.10Cash Flow3,0004,0005,0006,0007,000Period 3Probability0.100.250.300.250.10Cash Flow2,0003,0004,0005,0006,000Rec7231.2.3.OBLETi.iRequired1. Assume the probability distributions of cash flow for future periods are independent. Also assume that theafter-tax, risk-free rate is 4 percent. If the project requires an initial outlay Rs. 10,000, determine theexpected value of the net-present value.Determine the standard deviation about the expected value.2.3. What is the probability that the project will have a net present value of (a) greater than zero,(b) less than zero; (c) more than Rs. 4,000.Ans: (1) Rs. 3,948; (2) Rs. 1827.72 (3) (a) 98.46% (b) 1.54% (c) 48.80%

The expected net present value: When the cash flows for each period are uncertain, the probable cash…

PROBLEM 9-10 INDEPENDENT CASH FLOW AND CAPITAL BUDGETING UNDER UNCERTAINTIES Cable Corporation has determined the following discrete probability distributions for the net. cash flow generated by a contemplated project. Period 2 Period 1 Probability 0.10 0.25 0.30 0.25 0.10 Cash Flow 4,000 5,000 6,000 7,000 8,000 Probability 0.10 0.25 0.30 0.25 0.10 Cash Flow 3,000 4,000 5,000 6,000 7,000 Period 3 Probability 0.10 0.25 0.30 0.25 0.10 1927 72 Cash Flow 2,000 3,000 4,000 5,000 6,000 Required 1. Assume the probability distributions of cash flow for future periods are independent. Also assume that after-tax, risk-free rate is 4 percent. If the project requires an initial outlay Rs. 10,000, determine expected value of the net-present value. 2. Determine the standard deviation about the expected value. 3. What is the probability that the project will have a net present value of (a) greater than (b) less than zero; (c) more than Rs. 4,000. 16% () 1 5 1966)

PROBLEM 9-10 INDEPENDENT CASH FLOW AND CAPITAL BUDGETING UNDER UNCERTAINTIES Cable Corporation has determined the following discrete probability distributions for the net. cash flow generated by a contemplated project. Period 2 Period 1 Probability 0.10 0.25 0.30 0.25 0.10 Cash Flow 4,000 5,000 6,000 7,000 8,000 Probability 0.10 0.25 0.30 0.25 0.10 Cash Flow 3,000 4,000 5,000 6,000 7,000 Period 3 Probability 0.10 0.25 0.30 0.25 0.10 1927 72 Cash Flow 2,000 3,000 4,000 5,000 6,000 Required 1. Assume the probability distributions of cash flow for future periods are independent. Also assume that after-tax, risk-free rate is 4 percent. If the project requires an initial outlay Rs. 10,000, determine expected value of the net-present value. 2. Determine the standard deviation about the expected value. 3. What is the probability that the project will have a net present value of (a) greater than (b) less than zero; (c) more than Rs. 4,000. 16% () 1 5 1966)

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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Compute the NPV for Project X and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent. Time: 0 1 2 3 4 5 Cash flow: -80 -80 0 110 85 60 Multiple Choice A. $30.76 B. $184.15 C. $66.78 D. $28.22
Problem 7: NPV versus IRR. Consider the following two mutually exclusive projects: Year Cash flow Cash flow (X) (Y) O 1 2 3 -9500 5800 4000 4000 PART 7A: The NPV for X is $ Answer: 2083.77 -9500 3500 5000 6000 if the required rate of return is 10%.
10 The table lists projected cash flows for 4 projects. Which project(s) have unconventional cash flow? Year Project B Project C Project D 0 1000 300 2,000 -200 500 1,000 300 600 3000 400 -200 -2,000 1 2 3 Mutiple Choice O Project A -500 -500 1200 1500 O All of them Projects , C, and D Projects and D Projects C and D
Capital Budgeting Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$46,800 -$63,600 1 -21,600 20,400 2 43,200 20,400 3 43,200 20,400 4 43,200 20,400 5 -28,800 20,400 Calculate the payback period and discounted payback period for projects A & B.
Capital Budgeting Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 12% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$300,000 -$405,000 1 -387,000 134,000 2 -193,000 134,000 3 -100,000 134,000 4 600,000 134,000 5 600,000 134,000 6 850,000 134,000 7 -180,000 0 Under what conditions on the cost of capital should project B be preferred to project A?
The following are the cash flows of two projects: Year 2234O 0 1 Project A $ (380) 210 210 210 210 Project B $ (380) 280 280 280 If the opportunity cost of capital is 11%, what is the profitability index for each project? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Project A B Answer is complete but not entirely correct. Profitability Index 1.7145 X 1.8006
Question content area top Part 1 Assuming a 1-year, money market account investment at 2.282.28 percent (APY), a 1.391.39 percent inflation rate, a 2525 percent marginal tax bracket, and a constant $50 comma 00050,000 balance, calculate the after-tax rate of return, the real rate of return, and the total monetary return. What are the implications of this result for cash management decisions? Question content area bottom Part 1 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax rate of return is 1.711.71%. (Round to two decimal places.) Part 2 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax monetary return is $855855. (Round to the nearest dollar.) Part 3 Given an after-tax return of 1.711.71% and an inflation rate of…
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -$ 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 %
ok ht ences A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year 0 1 2 3 Cash Flow IRR -$27,400 11,400 14,400 10,400 If the required return is 16 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Should the firm accept the project? Yes O No
Living Colour Company has a project available with the following cash flows: Year 0 1 2 Cash Flow -$ 32,830 8,390 10,130 14,540 16,170 11,180 If the required return for the project is 9.3 percent, what is the project's NPV? sin 4 5 Multiple Choice O $27,580.00 O $5,790.94 O $14,037.83 O $12,958.00 $14,809.14
Problem 6-19 Capital Budgeting with Inflation Consider the following cash flows on two mutually exclusive projects: Year Project A -$ Project B -$ 0 54,000 69,000 1 34,000 33,000 2 29,000 42,000 3 24,000 45,000 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 10 percent and the inflation rate is 4 percent. Calculate the NPV for each project. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project A Project B Which project should you choose? Project A Project B
Here are the expected cash flows for three projects: Cash Flows (dollars) Year 2 Project A C Year 8 -6,588 -2,580 -6,500 Year 1 +1,375 +1,375 +2,588 +1,375 +1,375 Year 3 +3,758 +2,758 +3,750 Year 4 8 +3,750 +5,758 a. What is the payback period on each of the projects? b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 12%, calculate the NPV for projects A, B, and C. Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? a. Payback period b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept?…

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