Redmond Company is considering investing in one of the following two projects: (PV of $1 and PVA of $1)Note: Use appropriate factor(s) from the tables provided.Year1234TotalAnnual Cash Inflows.Project AProject B$ 2,340$4,340113, 3402, 3403, 3402,3401,3401,340$ 10, 360$ 10, 360Required:a. Which project is more desirable strictly in terms of cash inflows?b. Compute the present value of each project's cash inflows assuming the company's required rate of return is 12%.c. What is the maximum amount Redmond should be willing to pay for each project?d. Suppose each project costs $8,030. Which project(s) should be accepted?Complete this question by entering your answers in the tabs below.Required ARequired BRequired CRequired DWhich project is more desirable strictly in terms of cash inflows?More desirable strictly in terms of cash inflows

Net Present Value (NPV): It is the difference between the present value of cash inflows and the…

Answered: Redmond Company is considering…

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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You have 3 projects with the following cash flows: Year 1 Project 1 Project 2 Project 3 - $150 $18 $42 $61 $79 - 6,494 - 245 - 826 7,005 21 40 61 80 For which of these projects is the IRR rule reliable? Put another way, for which of these projects would you feel comfortable that the IRR decision rule would agree with the NPV decision rule? (Choose the most appropriate answer) O A. Project 1 O B. Project 1 & Project 3 OC. There is not enough information available to answer this question. O D. Project 3 O E. The IRR rule should agree with the NPV rule for all of the above projects. O F. Project 2
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1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Celestial Crane Cosmetics is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $550,000. The project is expected to generate the following net cash flows: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $350,000 $475,000 $400,000 $425,000 Celestial Crane Cosmetics's weighted average cost of capital is 7%, and project Alpha has the same risk as the firm's average project. Based on the cash flows, what is project Alpha's net present value (NPV)? $1,242,736 $292,736 $842,736 $1,011,283 Making the accept or reject decision Celestial Crane Cosmetics's decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should project Alpha.…
2) D&D is analyzing a project with the provided cash flow information. Can you calculate the project's internal rate of return (IRR)? Keep in mind that the IRR of a project can be lower than the weighted average cost of capital (WACC) or even negative, in which case the project should be rejected. Year Cash flows 0 -$1,000 1 $425 2 $425 3 $425
Porter Company is analyzing two potential Investments. Project X $ 97,090 Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Multiple Choice If the company is using the payback period method, and it requires a payback of three years or less, which project(s) should be selected? O 32,500 32,500 32,500 0 Both X and Y are acceptable projects. O Project Y. Project Y $ 77,000 Project Y because it has a lower Initial Investment. Project X 5,700 34,500 34,500 25,000 Neither X nor Y is an acceptable project.
Yoga Center Inc. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected. 11.00% 0 r Year Cash flows a. $167.41 Ob. $147.23 O c. $90.02 O d. $196.23 O e. $177.40 -$1,200 1 $475 2 $450 3 $425 4 $400
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Which one of the following will decrease the net present value of a project? Group of answer choices Moving each cash inflow forward one time period, such as from Year 3 to Year 2 Increasing the value of each of the project's discounted cash inflows Decreasing the required discount rate Increasing the project's initial cost at Time 0 Increasing the amount of the final cash inflow
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Tuttle Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected. WACC: Year Cash flows a. $196.28 b. $395.09 c. $680.00 Od. $223.76 e. $473.68 14.00% 0 -$1,000 1 $420 2 $420 3 $420 4 $420
"Consider the following two mutually-exclusive altematives: Project Alternatives n Project A1 Cash Flows Project A2 Cash Flows 0-514,000 1+$4,000 - $17,000 $21,000 2- 54,000 3-$12,000 If MARR=15% and assuming indefinite required service and repeatability, use the incremental NPV and IRR analyses in parts (a) and (b) of the problem, respectively, to choose the project in part (c). Please note that project alternatives A7 and A2 have different lives, namely three years for A1 and one year for A2. The alternatives should be compared over the same period, so project A2 will have to be repeated twice." axThe Net Present Value of the incremental investment is: YbrThe rternal Rate of Retun of the incremental investment is: (oWe shoulo choose project alternative: Note: Please enrer your onswvers to two decimal places. If using the interest factor method, apply the value of the factor os presented in the table or spreocsheet (with all four decimal places).

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