question is - Suppose two firms (A and B) are considering investing in new technology which is specificto a joint project lasting up to three years. The costs and benefits of investment dependupon the decisions of both firms. Suppose two firms (A and B) are considering investing in new technology which is specificto a joint project lasting up to three years. The costs and benefits of investment dependupon the decisions of both firms.Firm A's costs/revenues ($000s)Firm A investsFirm A investsFirm B investsFirm B doesn't investYear1 2 3Year1 23Revenues 20 60 60Revenues 2020Costs-50 0 0Costs-50-10 0Firm A doesn't investFirm A doesn't investFirm B investsFirm B doesn't investYear1 23 Year1 23Revenues 40200| Revenues 1010Costs-50 Costs18Assume that:the interest rate (r) is r = 10%.Year 1 costs/revenues occur at the end of the present period, i.e. in arrears (sodiscounting is required), Year 2 costs/revenues occur at the end of Year 2, etcNote, the flows occur in arrears (so discounting is required), ie. X = [1/(1 +r)*]Y.For each of the four scenarios, calculate:1. the total Present Value of revenues for Firm A.2. the total Present Value of costs for Firm A.3. the Net Present Value (NPV) of profit for Firm A.

Since, question is asking about only Firm A's revenue and cost, we will use scenario 2, where only…

question is - Suppose two firms (A and B) are considering investing in new technology which is specific to a joint project lasting up to three years. The costs and benefits of investment depend upon the decisions of both firms.

question is - Suppose two firms (A and B) are considering investing in new technology which is specific to a joint project lasting up to three years. The costs and benefits of investment depend upon the decisions of both firms.

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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The average accounting rate of return (AAR): Select one: A. is the best method of financially analysing mutually exclusive projects. B. is similar to the return on assets ratio. C. measures net income as a percentage of the sales generated by a project. D. considers the time value of money. E. is the primary methodology used in analyzing independent projects.
3. Using both Payback and NPV results, which projects, if any, would yourecommend McGloire should fund? Justify your answer and include a criticalassessment of two nonfinancial qualitative factors that could affect the investment
How do I determine which is the correct answer for this problem? A company estimates that an average-risk project has a WACC of 10 percent, a below-average-risk project has a WACC of 8 percent, and an above-average-risk project has a WACC of 12 percent. Which of the following independent projects should the company accept? a. Project A has average risk and an IRR = 9 percent. b. Project B has below-average risk and an IRR = 8.5 percent. c. Project C has above-average risk and an IRR = 11 percent. d. All of the projects above should be accepted. e. None of the projects above should be accepted. Please answer fast I give you upvote.
You are considering two similar but mutually exclusive investments. You have calculated that: Project A has an NPV = $7,600 and IRR = 19.80% Project B has an NPV = $11,200 and IRR = 17.30% Which project would you select? Project A O Project B
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(a) Calculate the payback period for each project. (b) Calculate the net present value (NPV) for each project. (c) Calculate the profitability index of each project. (d) Explain to the company which project should be implemented. Support your answer.
1) What is the company's WACC? 2) Should the company take the projects? Assume that the projects have the same risk as an average project for your firm. 3) If one project is depended on the other in a way that the company can only take both projects, should it take it?
Please describe NPV, IRR and their relationship. How do you evaluate each for making an investment decision? That is, what is a favorable NPV and IRR for making an investment decision. If you were developing a capital budgeting process at your employer, how would you prioritize your projects? What is the NPV when IRR = WACC, IRR>WACC, and IRR<WACC? There is a duplex for sale in Absecon for $700,000 at this time. It has 2 units that generate a total of $25,000 in gross rent. The property taxes are $4,000, commercial property insurance is $2,000, flood insurance is $1,000, and annual maintenance is $2,000. You expect to sell it in one year at a price growth of 0%. What is the NPV with a WACC of 10%. Is the IRR greater or less than the WACC? Would you invest in this project and why?
Required information [The following information applies to the questions displayed below.] Kate's Candy Corporation makes chewy chocolate candies at a plant in Winston-Salem, North Carolina. Steve Bishop, the production manager at this facility, installed a packaging machine last year at a cost of $600,000. This machine is expected to last for 10 more years with no residual value. Operating costs for the projected levels of production, before depreciation, are $120,000 annually. Steve has just learned of a new packaging machine that would work much more efficiently in the production line. This machine would cost $696,000 installed, but the annual operating costs would be only $48,000 before depreciation. This machine would be depreciated over 10 years with no residual value. He could sell the current packaging machine this year for $300,000. Steve has worked for Kate's Candy for 7 years. He plans to remain with the firm for about 2 more years, when he expects to become a vice president…
Use the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. QUESTION) Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places). INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000 Additional informationThe discount rate used by the company is 12%. Transcribed Image Text:Number of Periods 1 2 3 4 5 6 7 8 m 10 11 12 13 14 15 1% 2% 0.9901 0.9804 0.9709 3% 3.9020 3.8077…
QUANTITATIVE. Fill in the following statements based on the below project financial analysis. a. The Net Present Value is b. The Return on Investment is c. The project will break even (make back its costs) in Year d. This project Created by: Praju Manageski Note: Change the inputs, such as discount rate, number of years, costs, and benefits. Be sure to Discount rate Costs Discount factor Discounted costs Benefits Discount factor Discounted benefits profitable because the ROI and NPV are both Financial Analysis for Project GGU Assume the project is completed in Year 0 Discounted benefits -costs Cumulative benefits - costs ROI 5% 10,000 1.00 10,000 0 1.00 0 (10,000) (10,000) 16% 0 0.95 2,000 0.95 1,905 Year 0 0.91 5000 0.91 4,535 1,905 4,535 (8,095) (3,560) 0 0.86 . 6000 0.86 5,183 5,183 1,623 10,000 11,623 1,623 NPV
Required: a) Calculate the net present value of buying the new machine and advise on the acceptability of the proposed purchase (work to the nearest K1). b) Calculate the internal rate of return of buying the new machine and advise on the acceptability of the proposed purchase (work to the nearest K1). c) Calculate the discounted payback period of the project and comment on the results. d) Briefly discuss why good projects are very difficult to find as well as challenging to maintain or sustain

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