What is the NPV, payback period, and internal rate of return for Project A.With the initial cost of 1250000.000 Project ACash FlowYear 1250,000Year 2250,000Year 3250,000Year 4250,000Year 5400,000Year 6400,000Year 7400,000Year 8400,0004%Cost of Capital

Capital budgeting is the process by which investors determine the value of a potential investment…

Answered: Project A Cash Flow Year 1 250,000 Year…

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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Using image: a-1. What is the payback period for each project a-2. If you apply the payback criterion, which investment will you choose? b-1. What is the discounted payback period for each project? b-2. If you apply the discounted payback criterion, which investment will you choose? c-1. What is the NPV for each project? c-2. If you apply the NPV criterion, which investment will you choose? d-1. What is the IRR for each project? d-2. If you apply the IRR criterion, which investment will you choose? e-1. What is the profitability index for each project? e-2. If you apply the profitability index criterion, which investment will you choose? f. Based on your answers in (a) through (e), which project will you finally choose?
POD has a project with the following cash flows: Year Cash Flows 0 -$ 281,000 145,500 123 163,000 128,100 The required return is 8.3 percent. What is the profitability index for this project?
If the net present value of A is +$60 and of B is +$30, then what is the net present value of the combined project?
Compute the payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 11 percent and the maximum allowable payback is one year. Time: 0 1 2 3 4 5 Cash flow: −100 75 100 300 75 200
How should the $70,000 be allocated to each alternative to maximize annual return? What is the annual return?
0.5.10 A company that manufactures magnetic flow meters expects to undertake a project that will have the cash flows estimated. At an interest rate of 10% per year, what is the equivalent annual cost of the project? Find the AW value using (a) tabulated factors, and (b) a spreadsheet. Table Summary: A table divided into two columns shows the items to consider for obtaining the annual cost of the project in the first column, and the numeric value of the items in the second column. First cost, $ -800,000 Equipment replacement cost in year 2, $-300,000 Annual operating cost, $/year Salvage value, $ Life, years -950,000 250,000 4
What is the discounted payback of a project that has an initial outlay of $20,000 and will generate $6,000 in year 1, $12,000 in year 2, $9,000 in year 3, and $14,000 in year 4 assuming the cost of capital is 10%?
When calculating the annual rate of return, the average investment is equal to initial investment divided by life of project. (initial investment plus $0) divided by 2. (initial investment plus salvage value) divided by 2. initial investment divided by 2.
You are evaluating five investment projects. You already calculated the rate of return for each alternative investment and incremental rate of return between the two alternatives as well. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. Investment Alternative Initial Investment ($) Rate of Return (%) Rate of Return on Incremental Investment (%) A CDE A B C D E b.Select E. c. Select B. 35,000 45,000 d. Do nothing. 50,000 65,000 80,000 12 15 13 20 18 B 28 20 36 27 12 40 22 If all investment alternatives are mutually exclusive and the MARR is 12%, which alternative should be chosen? a. Select D. 42 25 -5
Profitability index. Given the discount rate and the future cash flow of each project listed in the following table, , use the PI to determine which projects the company should accept. ..... What is the Pl of project A? (Round to two decimal places.)
Keane & Co plc is considering two possible investments. The company requires an Accounting Rate of Return of 12% and payback within 2 years. It has a cost of capital of 12%. Forecast sales and production units Year 1 Year 2 Year 3 Year 4 Contribution per unit Fixed cost per year Initial investment Residual (scrap) value Accounting Rate of Return Internal Rate Return Discount factors at 12% are: Year 1 Year 2 Year 3 Year 4 Year 5 0.893 0.797 0.712 0.636 0.567 Project J 60,000 110,000 80,000 50,000 £40 £800,000 £7,600,000 £300,000 9.5% 8% Project K 30,000 24,000 20,000 12,000 £120 £700,000 £5,500,000 £150,000 19% 18%
Net Present Value-Unequal Lives Project 1 requires an original investment of $65,200. The project will yield cash flows of $14,000 per year for 5 years. Project 2 has a computed net present value of $15,700 over a three-year life. Project 1 could be sold at the end of three years for a price of $65,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest 10% 0.909 0.826 0.751 0.683 Year 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 6% 10 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 2.673 3.465 4.212 4.917 5.582 6.210 0.621 0.564 0.513 0.467 0.424 0.386 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.870 1.833 1.626 2.283 2.855 6.802 7.360 0.909 1.736 2.487 3.170 3.791 4.355 4.868 12% 5.335 5.759 6.145 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 15% 5.328…

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Project A Cash Flow Year 1 250,000 Year 2 250,000 Year 3 250,000 Year 4 250,000 Year 5 400,000 Year 6 400,000 Year 7 400,000 Year 8 400,000 4% Cost of Capital