RiverRocks, Inc., is considering a project with the following projected free cash flows: Year 2 3 4 Cash Flow - $49.7 $10.2 $19.6 $19.6 $15.1 (in millions) The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 12.4%. Should it take on this project? Why or why not The timeline for the project's cash flows is: (Select the best choice below.) O A. Cash Flows (millions) -S49.7 - $19.6 + - $10.2 - $19.6 + - $15.1 + Year 1 3 4 O B. Cash Flows (millions) $49.7 $10.2 $19.6 $19.6 $15.1 Year 1 2 3 OC. Cash Flows (millions) -S49.7 $10.2 $19.6 $19.6 $15.1 Year 1 2 3 4. O D. Cash Flows (millions) $49.7 -%2410.2 - $19.6 - $19.6 -$15.1 Year 4 The net present value of the project is S million. (Round to three decimal places.) RiverRocks v take on this project because the NPV is (Select from the drop-down menus )

RiverRocks, Inc., is considering a project with the following projected free cash flows: Year 2 3 4 Cash Flow - $49.7 $10.2 $19.6 $19.6 $15.1 (in millions) The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 12.4%. Should it take on this project? Why or why not The timeline for the project's cash flows is: (Select the best choice below.) O A. Cash Flows (millions) -S49.7 - $19.6 + - $10.2 - $19.6 + - $15.1 + Year 1 3 4 O B. Cash Flows (millions) $49.7 $10.2 $19.6 $19.6 $15.1 Year 1 2 3 OC. Cash Flows (millions) -S49.7 $10.2 $19.6 $19.6 $15.1 Year 1 2 3 4. O D. Cash Flows (millions) $49.7 -%2410.2 - $19.6 - $19.6 -$15.1 Year 4 The net present value of the project is S million. (Round to three decimal places.) RiverRocks v take on this project because the NPV is (Select from the drop-down menus )

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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Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time 0 1 2 3 4 5 6 Cash Flow -1,040 140 460 660 660 260 660 Use the NPV decision rule to evaluate this project; should it be accepted or rejected?
If the profitability index of a normal investment project is 0.5 and the initial investment required for the project is $ 2m, which of the below statements is incorrect? The project is worthwhile. The present value of cash inflows is $ 1m. The present value of cash inflows is $ 3m. The project has an NPV of $ 1m.
A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow 0 $27,700 1 11,700 14,700 3 10,700 If the required return is 18 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % Should the firm accept the project? Yes No
Pet World is considering a project that has the following cash flow data. Year Cash flows 0 -$9,500 1 2 3 4 $2,000 $2,025 $2,050 $2,075 $2,100 If the required rate of the return on similar projects is 3%, the firm should IRR is 5 this project because its accept; 2.31% reject; 2.57% reject; 2.82% reject; 2.08% accept; 3.10%
Brunette Company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $180,000. The present value of the future cash flows generated by the project is $163,000. Should they invest in this project? Oa. yes, because the rate of return on the project is equal to the desired rate of return used to calculate the present value of the future cash flows Ob. no, because net present value is +$17,000 Oc. no, because the rate of return on the project is less than the desired rate of return used to calculate the present value of the future cash flows Od. yes, because the rate of return on the project exceeds the desired rate of return used to calculate the present value of the future cash flows
Barry Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR?WACC = 12.85% Year 0 1 2 3 4 5 CFs -$35,600 10,100 20,200 30,300 40,400 50,500 `
1. Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the IRR decision to evaluate this project; should it be accepted or rejected? Time 0 1 2 3 4 5 6 Cash Flow −$ 5,000 $ 1,200 $ 1,400 $ 1,600 $ 1,600 $ 1,100 $ 2,000 2. Bad Pizza Pies, Inc has earnings per share of $1.75 and P/E of 42.56. What is the stock price?
Let's assume that you are working on an independent capital budgeting project which is expected to have the following cash flows: Year Cash Flows 0 -$850,000 1 $300,000 2 $400,000 3 $500,000 What is the project’s net present value (NPV) at an 18% required rate of return? (Round to the nearest whole number.) Will you accept or reject this project?
Grey Fox Aviation Company is analyzing a project that requires an initial investment of $450,000. The project’s expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 –175,000 Year 3 475,000 Year 4 450,000 Grey Fox Aviation Company’s WACC is 10%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 26.73% 27.89% 20.92% 23.24% If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements best describes the difference between the IRR method and the MIRR method? The IRR method uses only cash inflows to calculate the IRR. The MIRR method uses both cash inflows and cash outflows to calculate the MIRR. The IRR method assumes that cash flows are reinvested at a rate of return equal to the IRR. The MIRR method assumes that cash flows…
JVA corporation is considering investing in a new project with the estimated cash flows shown below. Compute the NPV for the project and recommend whether the firm should accept or reject it. The required cost of capital is 20 percent. Time Cash Flow 0 1 -100 20 -$13.55, reject O$10.26, reject O $1.90, accept. O $11.34, reject 2 52 3 62
Border Mining, Inc., is trying to evaluate a project with the following cash flows: Year Cash Flow 0 −$ 39,300,000 1 63,300,000 2 − 12,300,000 a-1. What is the NPV for the project if the company requires a return of 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-2. Should the firm accept this project?
Consider a project with free cash flows in one year of $130,000 in a weak market or $180,000 in a strong market, with each outcome being equally likely. The initial investment required for the project is $100,000, and the project's unlevered cost of capital is 20%. The risk-free interest rate is 10%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way that is, what is the initial market value of the unlevered equity? c. Suppose the initial $100,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity in a weak market and a strong market at the end of year 1, and what is its initial market value of the levered equity according to MM? Assume that the risk-free rate remains at its…

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