The cash flows for two investment projects are as given in Table P6.20. (a) For project A, find the value of X that makes the equivalent annual receipts equal the equivalent annual disbursement at i (b) For A to be preferred over project B, determine the minimum acceptable value of X in year 2 at i 15%. %3D 12% based on an AE criterion. TABLE P6.20 Project's Cash Flow 11 B -$4,500 $6,500 1 $1,000 -$1,400 -$1,400 3 $1,000 -$1,400 $1,000 -%241,400

The cash flows for two investment projects are as given in Table P6.20. (a) For project A, find the value of X that makes the equivalent annual receipts equal the equivalent annual disbursement at i (b) For A to be preferred over project B, determine the minimum acceptable value of X in year 2 at i 15%. %3D 12% based on an AE criterion. TABLE P6.20 Project's Cash Flow 11 B -$4,500 $6,500 1 $1,000 -$1,400 -$1,400 3 $1,000 -$1,400 $1,000 -%241,400

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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Comparison of NPV and IRR: The Case of Mutually Exclusive Projects Estimated cashflow data for each of two projects, A and B, and the discount rate, r, to be used for the analysis ofcapital investment projects are given below:[LO 12-9][LO 12-9]Year Project A Project B0 ($10,000) ($10,000)1 $7,000 $2,000 2 $3,000 $3,000 3 $2,000 $4,000 4 $2,000 $6,000 Discount rate, r = 10.0%.Required 1. In a capital budgeting context, explain the difference between independent and mutually exclusiveinvestments. Give an example of each type of investment project. What is the primary implication ofthis distinction for the analysis of capital investment projects?2. Use the built-in functions in Excel to calculate the IRR and the NPV for each investment project. Whichof these projects—if either—should be accepted if they are considered independent projects? RoundIRRs to 2 decimal places and NPVs to the nearest whole dollar. 3. An NPV profile for a project is a plot of the project’s NPV as a function of the…
Consider two investments A and B with the following sequences of cash flows: Net Cash Flow n Project A Project B 0 -$120,000 -$100,000 1 20,000 15,000 2 20,000 15,000 3 120,000 130,000 (a) Compute the IRR for each investment. (b) At MARR = 15%, determine the acceptability of each project. (c) If A and B are mutually exclusive projects, which project would you select, based on the rate of return on incremental investment?
The following are the cash flows of two projects: Year Project A Project B -$200 -$200 01234 Project A B If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.) Profitability index 80 80 80 80 00 100 100 100 Is the project with the highest profitability index also the one with the highest NPV? Yes No
For how long will Markus have to make payments of $116 at the end of every month to repay a loan of $3340 if intere is 4% per annum compounded semi-annually? State your answer in years and months (from 0 to 11 months). He will have to make payments for year(s) and month(s).
Filter Corporation has a project available with the following cash flows: Year Cash Flow 0 −$ 14,500 1 7,400 2 8,700 3 2,500 4 2,100 What is the project's IRR? Multiple Choice 21.63% 22.49% 23.07% 20.76% 24.22%
The following are the cash flows of 2 projects Year 0, Project A $340, Project B $340 Year 1, Project A $170, Project B $240 Year 2, Project A $170, Project B $240 Year 3, Project A $170, Project B $240 Year 4, Project A $170, Project B Calculate the NPV for both projects if the discount rate is 10% Project A - NPV? Project B - NPV? Suppose that you have can choose only one of these projects. Which would you choose? Project A, B, or niether?
(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) $240,000 240,000 240,000
Carland, Incorporated, has a project available with the following cash flows. If the required return for the project is 7.9 percent, what is the project's NPV? Year Cash Flow 0 -$ 258,000 1 66, 300 2 90, 400 3 117,800 4 70,900 5-12,000 $35, 378.61 $18, 968.78 $27, 173.69 $15, 173.69 $13,276.98
The following are the cash flows of two independent projects: Year Project A Project B 0 $ (270 ) $ (270 ) 1 150 170 2 150 170 3 150 170 4 150 a. If the opportunity cost of capital is 12%, calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
You are given the following cash flows for a project. Assuming a cost of capital of 12.84 percent. determine the profitability index for this project. Year 0 1 2 3 4 5 O 14981 O 1.68/7 O1.7508 1.6245 1.5613 Cash Flow -$1,115.00 $554.00 $622.00 $648 00 $426.00 $216.00
For project A, the cash flow effect from the change in net working capital is expected to be $490.00 at time 2 and the level of net working capital is expected to be $750.00 at time 1. What is the level of current assets for project A expected to be at time 2 if the level of current liabilities for project A is expected to be $2,600.00 at time 2? $2,860.00 (plus or minus $10) $3,840.00 (plus or minus $10) $1,360.00 (plus or minus $10) $2,340.00 (plus or minus $10) None of the above is within $10 of the correct answer
Consider the following projects: Cash Flows ($) Co -10,000 -20,000 Project D E Assume that the projects are mutually exclusive and that the opportunity cost of capital is 10%. a. Calculate the profitability index for each project. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project D E Profitability Index C1 20,000 35,000 b-1. Calculate the profitability-index using the incremental cash flows. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Profitability-index

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