A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows:TimeAfter-tax Cash Flow XAfter-tax Cash Flow Y-$100,00030,00055,00065,00001234-$80,00030,00030,00030,00030,0005,000Projects X and Y are equally risky and may be repeated indefinitely. If the firm's WACC is 10%, what is the EAA of the project that adds the most value to the firm? Do not round.intermediate calculations. Round your answer to the nearest dollar.Choose Project -Select-, whose EAA = $

Equivalent annual annuity of the project is the annuity for the net present value of project cash…

sive investment projects to evaluate. The projects have the following cash flows: TimeAfter-tax Cash Flow XAfter-tax Cash Flow Y -$100,000 -$80,000 30,000 30,000 55,000 30,000 65,000 30,000 30,000 5,000 0 1 2 3 4 5 ojects X and Y are equally risky and may be repeated indefinitely. If the firm's WACC is 10%, what is the EAA of the project that adds the most value to the firm termediate calculations. Round your answer to the nearest dollar. moose Project Select whose EAA- S

sive investment projects to evaluate. The projects have the following cash flows: TimeAfter-tax Cash Flow XAfter-tax Cash Flow Y -$100,000 -$80,000 30,000 30,000 55,000 30,000 65,000 30,000 30,000 5,000 0 1 2 3 4 5 ojects X and Y are equally risky and may be repeated indefinitely. If the firm's WACC is 10%, what is the EAA of the project that adds the most value to the firm termediate calculations. Round your answer to the nearest dollar. moose Project Select whose EAA- S

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

See similar textbooks

Similar questions

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 statistics for your company are 3.0 and 3.5 years, respectively. Time: Cash flow: 1 2 -$236,000 $65,900 $84,100 $141,100 $122,100 $81,300 Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) IRR % Should it be accepted or rejected? O rejected accepted
Diana, Industries is considering a project which has the following cash flows: Year Cash Flow 0 ? 1 $4,000 2 4,000 3 3,000 4 1,500 The project has a payback period of 2.5 years. The firm’s cost of capital is 12 percent. What is the project’s net present value (NPV)? What does the NPV rule advice regarding this investment opportunity?
1. Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the IRR decision to evaluate this project; should it be accepted or rejected? Time 0 1 2 3 4 5 6 Cash Flow −$ 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?
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 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow: −$7,100 $1,000 $2,200 $1,400 $1,400 $1,200 $1,000 Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Should it be accepted or rejected?multiple choice accepted rejected
Adam Andler Corp is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC or cost of capital Net investment cost (depreciable basis) The salvage value of its equipment No other fixed assets will be acquired for following years The company will require an increase in net working capital at the $10,000 beginning The company will liquidate all working capital at the end of the project -10,000 Units sold (constant through years) 60,000 $30.00 $50,000 $17.00 Average price per unit, Year 1 Fixed operating…
What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's weighted average cost of capital (WACC) is 9%, the project's NPV (rounded to the nearest dollar) is: $355,048 $287,420 $405,769 $338,141 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not take the time value of money into account. The payback period is calculated using net income instead of cash flows. The payback period does not take the project's entire life into account.
For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 –$ 148,000 1 64,000 2 75,000 3 59,000 a. At a required return of 12 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. At a required return of 21 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bluekettle Inc. is considering a project that has the following cash. What is the project's NPV(net present value) if you use a required rate of 14% ? If the NPV is negative, put the minus sign in front of your answer, such as -200.56. Note that a project's projected NPV can be negative, in which case it will be rejected. Year 0 1 2 3 Cash flows - $6,500 $1,600 $3,700 $7,500
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 $300,000 Year 2 –175,000 Year 3 475,000 Year 4 450,000 Grey Fox Aviation Company’s WACC is 10%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 26.73% 27.89% 20.92% 23.24% If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should this independent project. Which of the following statements best describes the difference between the IRR method and the MIRR method? The IRR method uses only cash inflows to calculate the IRR. The MIRR method uses both cash inflows and cash outflows to calculate the MIRR. The IRR method assumes that cash flows are reinvested at a rate of return equal to the IRR. The MIRR method assumes that cash flows…
Border Mining, Inc., is trying to evaluate a project with the following cash flows: Year Cash Flow 0 −$ 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?
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 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: Cash flow: 0 1 2 4 5 -$4,700 $ 1,130 $ 2,330 $ 1,530 $1,530 $ 1,330 Use the discounted payback decision rule to evaluate this project. Note: Round your answer to 2 decimal places. Discounted payback Should it be accepted or rejected? (Click to select) ✓ years 6 $ 1,130
A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: TimeAfter-tax Cash Flow XAfter-tax Cash Flow Y $70,000 35,000 35,000 35,000 35,000 5,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firm's WACC is 11%, what is the EAA of the project that adds the most value to the firm? Do not round intermediate calculations. Round your answer to the nearest dollar. Choose Projectleid whose EAA-5 0 1 2 3 (4 5 -$80,000 40,000 $5,000 60,000

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS