Risk classes and RADR Moses Manufacturing is attempting to select the best of three mutually exclusive projects, X, Y, and Z. Although all the projects have 5-year lives, they possess differing degrees of risk. Project X is in class V, the highest-risk class; project Y is in class II, the below-average-risk class; and project Z is in class III, the average-risk class. The basic cash flow data for each project and the risk classes and risk-adjusted discount rates (RADRS) used by the firm are shown in the following tables. a. Find the risk-adjusted NPV for each project. b. Which project, if any, would you recommend that the firm undertake? a. The net present value for project X is $ (Round to the nearest cent.) C...

Risk classes and RADR Moses Manufacturing is attempting to select the best of three mutually exclusive projects, X, Y, and Z. Although all the projects have 5-year lives, they possess differing degrees of risk. Project X is in class V, the highest-risk class; project Y is in class II, the below-average-risk class; and project Z is in class III, the average-risk class. The basic cash flow data for each project and the risk classes and risk-adjusted discount rates (RADRS) used by the firm are shown in the following tables. a. Find the risk-adjusted NPV for each project. b. Which project, if any, would you recommend that the firm undertake? a. The net present value for project X is $ (Round to the nearest cent.) C...

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 management of NUBD Co. is considering three investment projects-W, X, and Y. Project W would require an investment of P21,000, Project X of P66,000, and Project Y of P95,000. The present value of the cash inflows would be P22,470 for Project W, P73,920 for Project X, and P98,800 for Project Y. Rank the projects according to the profitability index, from most profitable to least profitable. *
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 ($) Rate of Return (%) Rate of Return on Incremental Investment (%) A CDE A B C D E b.Select E. c. Select B. 35,000 45,000 d. Do nothing. 50,000 65,000 80,000 12 15 13 20 18 B 28 20 36 27 12 40 22 If all investment alternatives are mutually exclusive and the MARR is 12%, which alternative should be chosen? a. Select D. 42 25 -5
The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) 0 -$ 76,000 -$ 34,000 1 29,000 11,000 23,500 17,500 2 3 36,000 42,000 a-1. If the required return is 12 percent, what is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. a-2. If the company applies the profitability index decision rule, which project should it take? b-1. If the required return is 12 percent, what is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b-2. If the company applies the net present value decision rule, which project should it take? a-1. Project I a-2. Project II b-1. Project I b-2. Project II
(Related to Checkpoint 11.1 and Checkpoint 11.4) (IRR and NPV calculation) The cash flows for three independent projects are found below: a. Calculate the IRR for each of the projects. b. If the discount rate for all three projects is 13 percent, which project or projects would you want to undertake? c. What is the net present value of each of the projects where the appropriate discount rate is 13 percent? a. The IRR of Project A is%. (Round to two decimal places.) Data table Year 0 (Initial investment) Year 1 Year 2 Year 3 Year 4 Year 5 Project A $(70,000) $12,000 18,000 19,000 28,000 33,000 Project B $(110,000) $28,000 28,000 28,000 28,000 28,000 Project C $(420,000) $240,000 240,000 240,000
A project has initial costs of $3,000 and subsequent cash inflows of $1350,275,875 and 1525 . The company's 10% cost of capital is an appropriate discount rate for this average risk project. Calculate the following: NPV IRR Profitability Index Please number/label each of your answers as shown above. Be sure to show your TVM function calculator inputs, and four decimal places.
The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (1) Cash Flow (II) -$ -$ 0 55,000 1 25,000 2 25,000 3 25,000 a-1. If the required return is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project I Project II 18,900 10,150 10,150 10,150 a- If the company applies the profitability index decision rule, which project should the 2. firm accept? Project I O Project II Project I Project II 1. b- What is the NPV for both projects? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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 %
Which of the following comes closest to the net present value (NPV) of a project whose initial investment is $5 and which produces two cash flows: the first at the end of year 2 of $3 and the second at the end of year 4 of $7? The required rate of return is 13%? Select one: a. $1.84 b. $0 c. $1.64 d. $2.05 e. $2.26
CVD Ltd needs to choose from three mutually exclusive projects. The net cash flows from the projects will depend on market demand. All of the projects will last for only one year. The forecast net cash flows and their associated probabilities are given below:Market Demand Probability Weak 0.20 Average 0.50 Good 0.30 Market Demand Project A Project B Project C Weak R450 000 R350 000 R550 000 Average R550 000 R400 000 R500 000 Good R650 000 R450 000 R700 000 Required:Calculate the expected value of the net cash flows from each of the three projects.

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