Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 ane is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects' NPVS, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the nearest cent. Project S: $ Project Li $ Which project would be selected, assuming they are mutually exclusive? Based on the NPV values. -Select- v would be selected. Calculate the two projects' IRRS. Do not round intermediate calculations. Round your answers to two decimal places. Project S: Project L: Which project would be selected, assuming they are mutually exclusive? Based on the IRR values, -Select- would be selected. Calculate the two projects' MIRRS, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to two decimal places.

Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 ane is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects' NPVS, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the nearest cent. Project S: $ Project Li $ Which project would be selected, assuming they are mutually exclusive? Based on the NPV values. -Select- v would be selected. Calculate the two projects' IRRS. Do not round intermediate calculations. Round your answers to two decimal places. Project S: Project L: Which project would be selected, assuming they are mutually exclusive? Based on the IRR values, -Select- would be selected. Calculate the two projects' MIRRS, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to two decimal places.

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

See similar textbooks

Related questions

Q: Jill Harrington, a manager at Jennings Company, is considering several potential capital investment…

A: 1. Payback period = Initial investment/annual cash flowsParticular X Y Z Initial investments $40,000…

Q: Project L costs $40,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is…

A: Investment appraisal techniques are used while investing in any project. These techniques tell us…

Q: Project S requires an initial outlay at t = 0 of $10,000, and its expected cash flows would be…

A: The problem involves the determination of the NPV or the net present value. NPV pertains to the…

Q: NPV Calculate the net present value (NPV) for a 10-year project with an initial investment of…

A: Net present value is the technique used in capital budgeting to evaluate the acceptability of the…

Q: PI of a project tha

A: PI (Profitability Index) is defined as one of the techniques of capital budgeting. This technique…

Q: Net present value. Lepton Industries has three potential projects, all with an initial cost of…

A: For selecting out of Project Q,R,S, we need to calculate the Present Value of the cash flows of each…

Q: A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to…

A: Internal rate of return(IRR): It is the discount rate which makes the net present value (Difference…

Q: Project S requires an initial outlay at t = 0 of $14,000, and its expected cash flows would be…

A: NPV is the net present value and is the difference between the present value of the cash flow and…

Q: An investor is looking at two projects, project A and B. Project A pays $44,000 with prob. 0.7 and…

A: The objective of the question is to find the value of X, which is the payout of project B with a…

Q: We have two mutually exclusive projects A and B. Both require initial costs of $10,000 and last for…

A: NPV means Net present value.It is a capital budgeting technique used for making investment…

Q: A project has an initial cost of $40,000, expected net cash inflows of $11,000 per year for 6 years,…

A: The process of analyzing and evaluating any project's feasibility and profitability is recognized as…

Q: You must analyze two projects, X and Y. Each project costs $1,000, and the firm’s WACC is 10%. The…

A: Initial Cost = $1000 WACC = r = 10%

Q: A project has cash flows of -$108,000, $52,800, $53,200, and $83,100 for Years 0 to 3, respectively.…

A: Payback period is an important capital budgeting metric. Payback period is the time period taken to…

Q: There are two projects under consideration by the Rainbow factory. Each of the projects will require…

A: The term internal rate of return or IRR refers to the rate of return at which the NPV of a project…

Q: You must analyze two projects, X and Y. Each project costs $1,000, and the firm’s WACC is 10%. The…

A: Capital budgeting is an important process for companies as it helps them allocate their financial…

Q: Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two…

A: Payback period is capital budgeting technique used for making investment decisions.It is time…

Q: NPV Calculate the net present value (NPV) for a 30-year project with an initial investment of…

A: NPV is the sum of present value of future cashflows less initial investment

Q: a. What is the IRR of each project? b. What is the NPV of each project at your cost of capital? c.…

A: Net present value and internal rate of return are the modern methods of capital budgeting that are…

Q: Suppose you have $20,000 to invest in one of the following projects. Project Alpha requires an…

A: To determine the net present value, we need to discount each cash flow to PV using the formula…

Q: You must analyze two projects, X and Y. Each project costs $1,000, and the firm’s WACC is 10%. The…

A: Project X : Initial cost = $1000 WACC = r = 10% Cash flow for years 1 = cf1 = $500 Cash flow for…

Q: Blink of an Eye Company is evaluating a 5-year project that will provide cash flows of $37,700, $72,…

A: NPV stands for net present value. It is an important capital budgeting tool. We use NPV to determine…

Q: You can only take one of the following two projects. You have no capital constraints and the cost of…

A: IRR (Internal Rate of Return) is a financial metric that determines the profitability of an…

Q: Project S requires an initial outlay at t=0 of $12,000, and its expected cash flows would be $4,000…

A: Project S:Initial outlay (at t=0) = $12,000Annual cash flow (A) = $4,000Time (n) =5 yearsRate (i)…

Q: You must analyze two projects, X and Y. Each project costs $1,000, and the firm’s WACC is 10%. The…

A: Initial cost = $1000 WACC = r = 10% Cash flow for years 1 = cf1 = $500 Cash flow for years 2 = cf2 =…

Q: roject you what is the IRR and should the project be accepted? 7.23%, accept project 7.23%, reject…

A: Initial investment = $3,500Cash flow received at the end of each of the next 10 years = $525 Cost of…

Q: Project L costs $70,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is…

A: Using excel MIRR function

Q: Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500…

A: Capital budgeting indicates the evaluation of the profitability of possible investment and projects…

Q: Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500…

A: Here, WACC is 11% Cost of Project X is $1,500 Cash Flows of Project X are as follows: Year Cash…

Q: You are responsible to manage an IS project with a 4-year horizon. The annal cost of the project is…

A: Return on investment is the income earned on an investment throughout the defined investment…

Q: Project Q requires an initial outlay at t = 0 of $20,000, and its expected cash flows would be…

A: Here we will use the capital budgeting tools of NPV and IRR. These tools will help us to ascertain…

Q: There are two projects under consideration by the Rainbow factory. Each of the projects will require…

A: At IRR, Present value of cash inflows =Present value of cash outflowsWhich means , At IRR Net…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Capital Budgeting Methods
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and
is expected to produce cash flows of $7,400 per year for 5 years.
Calculate the two projects' NPVS, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the
nearest cent.
Project S: $
Project L: $
Which project would be selected, assuming they are mutually exclusive?
Based on the NPV values, Select- v would be selected.
Calculate the two projects' IRRS. Do not round intermediate calculations. Round your answers to two decimal places.
Project S:
%
Project L:
%
Which project would be selected, assuming they are mutually exclusive?
Based on the IRR values, -Select-
would be selected.
Calculate the two projects' MIRRS, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to two
decimal places.
Project S:
%
Project L:
%
Which project would be selected, assuming they are mutually exclusive?
Based on the MIRR values, -Select-
v would be selected.
Calculate the tvwo projects' PIs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to three
decimal places.
Project S:
Project L:
Which project would be selected, assuming they are mutually exclusive?
Based on the PI values, -Select- v would be selected.
Which project should actually be selected?
v should actually be selected.
-Select-

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

Step 8

Trending now

This is a popular solution!

Step by step

Solved in 8 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

A project that costs $2,300 to install will provide annual cash flows of $730 for each of the next 5 years. a. Calculate the NPV if the opportunity cost of capital is 12%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV b. Is this project worth pursuing? Yes O No c. What is the project's internal rate of return IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.) %24
4. You have to select only one of the following projects (ie. They are mutually exclusive.) Project #1 is 4 years long and has an NPV of $140,000. Project #2 is 6 years long and has an NPV of $180,000. The required rate of return is 10%. Which project should you take using the EAA approach?
A project that provides annual cash flows of $12,600 for 12 years costs $65,000 today. At what rate would you be indifferent between accepting the project and rejecting it? Answer with Excel functions
Kirklin Clinic is evaluating a project that costs $60,000 and has expected net cash inflows of $7,500 per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 12%. What is the project's MIRR? (hint: remember to put the answer as a percentage). 13.9% 5.5% O 3.2% 22.1% W
A project has initial costs of $3,000 and subsequent cash inflows of $1350,275,875 and 1525 . The company's 10% cost of capital is an appropriate discount rate for this average risk project. Calculate the following: NPV IRR Profitability Index Please number/label each of your answers as shown above. Be sure to show your TVM function calculator inputs, and four decimal places.
Project S requires an initial outlay at t= 0 of $16,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t= 0 of $27,500, and its expected cash flows would be $10,150 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Select the correct answer. Ca. Project S, because the NPVs > NPVL. Ob. Both Projects S and L, because both projects have IRR's > 0. Oc. Both Projects S and L, because both projects have NPV's > 0. Od. Project I because the NPVL > NPVs. Oe. Neither Project S nor L, because each project's NPV < 0.
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $34,665 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $31,500 $22,000 $4,500 $58,000 Beta Project 7,500 23,500 29,066 60,066 A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to calculate internal rate of return. Alpha Project fill in the blank % Beta Project fill in the blank %
Project S has a cost of $11,000 and is expected to produce benefits (cash flows) of $3,400 per year for 5 years. Project L costs $23,000 and is expected to produce cash flows of $6,900 per year for 5 years. Calculate the two projects' NPVs, assuming a cost of capital of 14%. Do not round intermediate calculations. Round your answers to the nearest cent. Project S: $ Project L: $
Kirklin Clinic is evaluating a project that costs $60,000 and has expected net cash inflows of $7,500 per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 12%. What is the project's MIRR? (hint: remember to put the answer as a percentage). O 13.9% 5.5% O 3.2% 22.1% h
Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $37,000, and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend? Select the correct answer. a. Project L, because the NPVL > NPVS. b. Neither Project S nor L, because each project's NPV < 0. c. Both Projects S and L, because both projects have NPV's > 0. d. Both Projects S and L, because both projects have IRR's > 0. e. Project S, because the NPVS > NPVL.

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS