Perit Industries has $150,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternativesare:Cost of equipment requiredWorking capital investment required.Annual cash inflowsSalvage value of equipment in six yearsLife of the projectProject A$ 150,00050$ 24,000$ 8,5006 years1. Net present value project A2. Net present value project B3. Which investment alternative (if either) would yourecommend that the company accept?Project B30$ 150,000$ 37,000$06 yearsThe working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries discountrate is 15%Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using tables,Required:1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearestwhole dollar amount.)2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearestwhole dollar amount.)3. Which investment alternative (if either) would you recommend that the company accept?

The net present value is useful in deciding the feasibility of an investment. It is calculated by…

Answered: Required: 1. Compute the net present…

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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Select all that are true with respect to the Cost of Capital. Group of answer choices The cost of capital is the discount rate to use when evaluating investment opportunities There is one cost of capital for every firm, and that one rate should be used for evaluating all investment opportunities The cost of capital for an asset is driven by an asset's riskiness The cost of capital is driven by how we raise funds to pay for an investment opportunity The cost of capital for a project is driven by the systematic risk of that project When estimating the cost of capital for a project, it is the total risk of that project that matters
I need help matching the definitions to the right words.
Moerdyk & Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the one with the higher IRR will also have the higher NPV, i.e., no conflict will exist. WACC: CFS CFL O a. $59.20 O b. $62.75 O c. $51.51 O d. $65.71 O e. $53.28 6.75% 0 -$1,025 -$1,025 1 $650 $100 2 $450 $300 3 $250 $500 4 $50 $700
20)
A company is considering two alternative investment projects both of which have a positive net present value. The projects have been ranked on the basis of both net present value (NPV) and internal rate of return (IRR). The result of the ranking is shown below: Project A Project B NPV 1st 2nd IRR 2nd 1stDiscuss any four (4) potential reasons why the conflict between the NPV and IRR ranking may have arisen.
A tire manufacturing firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. What is the cost of capital at which the decision to take project L (or S) based on NPV will contradict the decision based on IRR method? Hint: Calculate the crossover rate and explain how the crossover rate would influence your decision to take project L or project S based on NPV vs. IRR? Show your excel work and thoroughly explain your answer. See cash flows below: Year 0 1 2 3 4 Project L: CFL -$2,050 $770 $780 $790 $795 Project S: CFS -$4,300 $1,300 $1,510 $1,520 $1,530
16. Which of the following statements regarding the net present value rule and the rate of return rule is false? A. Accept a project if NPV > cost of investment.B. Accept a project if NPV is positive.C. Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market.D. Reject a project if NPV is negative.
I need help matching the defintions with the words, thank you.
Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. O WACC: CFS CFL O a. $199.41 O b. $0.00 O c. $109.03 O d. $7.51 Oe. $8.32 10.75% 0 -$1,100 -$2,200 1 $375 $725 2 $375 $725 3 $375 $725 st 4 $375 $725
Which of the following statements is true? I. In the payback method, depreciation is added back to net operating income when computing the annual net cash flow. II. When a company is cash poor, a project with a short payback period but a low rate of return may be preferred to a project with a long payback period and a high rate of return. III. A shorter payback period does not necessarily mean that one investment is more desirable than another. Only statement III is true. O All of the statements are true. None of the statements are true. Only statement I is true.
Which of the following statements is most FALSE? A. If a project with normal cash flows has a positive NPV, it will definitely have an MIRR greater than the cost of capital. B. If a project with normal cash flows has an IRR that is greater than the cost of capital, then taking on that project would decrease the value of the firm. C. If a project has normal cash flows, then the MIRR has to be between k and IRR if the project has positive interim cash flows (cash flows between t=0 and the end of the project). D. If a project with normal cash flows does not have any interim cash flows, the project's IRR will equal the project's MIRR. E. Multiple IRRS can exist for a project if the project has nonnormal cash flows. OA OB OC
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