The management of Mastiff Enterprises has a choice between two projects viz. Project Cos and Project Tan, each of which requires an initial investment of R2 500 000. The following information is presented to you: 5.1 5.2 5.3 Year 5.4 1 5.5 2 3 PROJECT COS Net Profit R 130 000 130 000 130 000 130 000 PROJECT TAN Net Profit R 130 000 A scrap value of R100 000 is expected for Project Tan only. The required rate of return is 15%. Depreciation is calculated using the straight-line method. 80 000 180 000 Use the information provided above to calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. 120 000 220 000 50 000 Payback Period of Project Tan (expressed in years, months and days). Net Present Value of Project Tan. Accounting Rate of Return on average investment of Project Tan (expressed to two decimal places). Benefit Cost Ratio of Project Cos (expressed to three decimal places). Internal Rate of Return of Project Cos (expressed to two decimal places) USING INTERPOLATION. ||||U

The management of Mastiff Enterprises has a choice between two projects viz. Project Cos and Project Tan, each of which requires an initial investment of R2 500 000. The following information is presented to you: 5.1 5.2 5.3 Year 5.4 1 5.5 2 3 PROJECT COS Net Profit R 130 000 130 000 130 000 130 000 PROJECT TAN Net Profit R 130 000 A scrap value of R100 000 is expected for Project Tan only. The required rate of return is 15%. Depreciation is calculated using the straight-line method. 80 000 180 000 Use the information provided above to calculate the following. Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. 120 000 220 000 50 000 Payback Period of Project Tan (expressed in years, months and days). Net Present Value of Project Tan. Accounting Rate of Return on average investment of Project Tan (expressed to two decimal places). Benefit Cost Ratio of Project Cos (expressed to three decimal places). Internal Rate of Return of Project Cos (expressed to two decimal places) USING INTERPOLATION. ||||U

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

See similar textbooks

Related questions

Q: Rocky Red Ltd has provided the following figures for two investment projects, only one of which may…

A: Payback period: The time it takes to return the initial investment done in the project is known as…

Q: The following information relates to two projects of which you have to select one to invest in. Both…

A: To Find: Payback period NPV Accounting rate of return

Q: Additional Information The discount rate used by the company is 12%. 5.2 Use the information…

A: Internal Rate of Return is a techniques in Capital Budgeting through which we can know the actual…

Q: There are two project options to choose from and decide a better option for the company based on the…

A: Given information: Initial investment cost of option A is -10,000 Initial investment cost of option…

Q: d. Explain why NPV is considered technically superior to Payback and Accounting Rate of Return (ARR)…

A: There are various capital budgeting methods that can be used to assess or evaluate various…

Q: A business has £18 million available for capital investment in the current year, but has the…

A: Here, To Find: Profitability Index (PI) and ranking =?

Q: The Michner Corporation is trying to choose between the following two mutually exclusive design…

A: NPV (Net Present Value) and PI ( Profitability Index) are both techniques used to assess the…

Q: Bi-Lo Traders is considering a project that will produce sales of $51,700 and have costs of $29,300.…

A: Sales = s = $51,700Cost = c = $29,300Taxes = t = $5100Depreciation = d = $3100Net Working Capital =…

Q: The Michner Corporation is trying to choose between the following two mutually exclusive design…

A: Capital budgeting refers to the tool which is used in evaluating the investment proposal in order to…

Q: The management of Nadia Investors has to make a choice between two projects: Project Intensive and…

A: Capital Budgeting is the technique for evaluating various projects in terms of profitability of the…

Q: Pepper Co is contemplating three available investment opportunities, the cash flows of which are…

A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: The Michner Corporation is trying to choose between the following two mutually exclusive design…

A: The objective of the question is to calculate the profitability index and net present value (NPV)…

Q: You must decide firm which of the proposed projects should be accepted for the upcoming year since…

A: A method of capital budgeting that helps to evaluate the present worth of cash flow and a series of…

Q: Anne Company trying to decide which project should be taken out of three possible investments. The…

A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Q: Bi-Lo Traders is considering a project that will produce sales of $48,250 and have costs of $27,500.…

A: Operating Cash flow is the amount which is earned by the investor from the project. It is the net…

Q: The Whenworth Corporation is trying to choose between the following two mutually exclusive design…

A: Introduction Net Present Value(NPV): Net present value is a tool of Capital budgeting to analyze…

Q: The Whenworth Corporation is trying to choose between the following two mutually exclusive design…

A: Discount rate is 10% To Find: Profitability Index Net present Value

Q: Using the below informtion answer: 5.1 Payback Period of Project Tan (expressed in years, months…

A: The payback period is a method of finding out the profitability of a project. It calculates the time…

Q: The following information relates to three potential investment projects that are being considered…

A: Project A Project B Project C Initial cost £1,75,000.00 £1,95,000.00 £1,90,000.00 Expected…

Q: a) Which project will the financial manager choose, based on the payback period method? b) Calculate…

A: Formula: Payback Period=Initial Investment- Opening Cumulative CashflowClosing Cumulative Cashflow-…

Q: The Michner Corporation is trying to choose between the following two mutually exclusive design…

A: The NPV is the tool or method for evaluating investment proposal where the net discounted benefits…

Q: Tiffany Co. is analyzing two projects for the future. Assume that only one project can be selected.…

A: Payback for Project Y = Cost of machine / Annual Net cash flow = P680,000/240000 = 2.83 years

Q: As the financial manager of Soloi Ltd, you are required to analyse two proposed capital investments,…

Q: BATA plc. is considering the following two projects. Only one of which maybe selected. Each project…

A: Making decisions about capital budgeting entails assessing and choosing capital expenditures or…

Q: You are required to investigate the following project: The initial Investment at n=0 is $100,000.…

A: Project life= 10 years Minimum return on investment=14% Initial costs= $100,000 Annual operating…

Q: You must decide firm which of the proposed projects should be accepted for the upcoming year since…

A: Net Present Value (NPV) is a capital budgeting technique that uses a discount rate to bring all the…

Q: Tuttle Enterprises is considering a project that has the following cash flow and WACC data. The…

A: The net present value of a project is the present value of all the cash flows of that project…

Q: The Michner Corporation is trying to choose between the following two mutually exclusive design…

A: The process that accesses any investment/project's profitability and allows the investor on whether…

Q: Oil Gas Limited is considering investing in two projects; Project 1 and Project 2. Information…

A: The question is related Capital Budgeting The Net Present Value is calculated with the help of…

Q: You are considering the following project. What is the NPV of the project? WACC of the project: 0.10…

A: NPV of a project can be found as the difference between present value of cash flow and initial…

Q: The Michner Corporation is trying to choose between the following two mutually exclusive design…

A: Net Present Value(NPV) is the technique used to discount the cash flows generated over the period of…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

100%

INFORMATION
The management of Mastiff Enterprises has a choice between two projects viz. Project Cos and Project Tan, each of
which requires an initial investment of R2 500 000. The following information is presented to you:
PROJECT TAN
5.1
5.2
5.3
Year
5.4
1
5.5
2
3
5
PROJECT COS
Net Profit
R
130 000
130 000
130 000
130 000
130 000
Net Profit
R
80 000
A scrap value of R100 000 is expected for Project Tan only. The required rate of return is 15%. Depreciation is calculated
using the straight-line method.
180 000
Use the information provided above to calculate the following. Where applicable, use the present value tables
provided in APPENDICES 1 and 2 that appear after QUESTION 5.
120 000
220 000
50 000
Payback Period of Project Tan (expressed in years, months and days).
Net Present Value of Project Tan.
Accounting Rate of Return on average investment of Project Tan (expressed to two decimal places).
Benefit Cost Ratio of Project Cos (expressed to three decimal places).
Internal Rate of Return of Project Cos (expressed to two decimal places) USING INTERPOLATION.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1Basic Information

Step 2 Solution

Step 3 Solution

Step 4 Solution

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Follow-up Questions

Read through expert solutions to related follow-up questions below.

Follow-up Question

Please only answer question 5.4 and 5.5

Solution

by Bartleby Expert

SEE SOLUTION

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

The management of Nadia Investors has to make a choice between two projects: Project Intensive andProject Primary. Each project will require an initial investment of R2 500 000.INFORMATION Project Intensive Project Primary Net profits Net profitsYear R R1 80 000 130 0002 180 000 130 0003 120 000 130 0004 220 000 130 0005 50 000 130 000 A scrap value of R100 000 is expected for Project Intensive. Depreciation is calculated on thestraightline basis.The required rate of return is 15%.REQUIRED:Use the information provided above to calculate the following:3.1 Payback Period for Project Intensive (answer in years, months and days). 3.2 Calculate Accounting rate of return for Project Primary (answer in two decimal places). 3.3 Net Present Value for Project Intensive. 3.4 Internal Rate of Return for Project Primary using interpolation (answer in two decimalplaces.
Use the following information provided to answer the question below: INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You ar given the following projected data: Initial cost Scrap value Depreciation per year Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Project A R300 000 R40 000 R52 000 R20 000 R30 000 R50 000 R60 000 R10 000 Project B R300 000 0 R60 000 R90 000 R90 000 R90 000 R90 000 R90 000
Rocky Red Ltd has provided the following figures for two investment projects, only one of which may be chosen. Rocky Red Ltd has provided the following figures for two investment projects, only one of which may be chosen. Project Alpha Project Beta Initial outlay £200,000 £180,000 Profit for the year 1 £80,000 £10,000 2 £60,000 £10,000 3 £40,000 £30,000 4 £30,000 £25,000 Estimated value at the end of year 4 £10,000 £5,000 Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 15%.…
Coffer Company is analyzing two potential investments. Cost of machine Project X $ 97,090 Net cash flow: Year 1 Year 2 Year 3 Year 4 Project Y $ 72,000 36,500 3,700 36,500 33,500 36,500 33,500 0 13,000 If the company is using the payback period method, and it requires a payback period of three years or less, which project(s) should be selected? Multiple Choice ○ Project Y. ○ Project X. Both X and Y are acceptable projects. Neither X nor Y is an acceptable project. Project Y because it has a lower Initial Investment.
The following information relates to two projects of which you have to select one to invest in.Both projects have an initial cost of $400,000 and only one can be undertaken.Project X YExpected profits $ $Year 1 160,000 60,000Year 2 160,000 100,000Year 3 80,000 180,000Year 4 40,000 240,000Estimated resale value atthe end of year 4 80,000 80,000i) Profit is calculated after deducting straight line depreciationii) The cost of capital is 16%Required:a) For both projects, calculate the following:i) The payback period to one decimal place ii) The accounting rate of return using average investments iii) The net present value iv) Advise the board which project in your opinion should be undertaken, givingreasons for your decision.
A company is looking at five different potential projects, but it can only do one of them. Which project should the company select? For this question, use the following information: Project A B D E Initial Investment -3,300 -6,500 -5,300 -7,000 -5,500 Annual Benefit 650 1,200 950 1,250 1,000 Salvage Value 150 425 300 1,000 200 Useful life 10 10 10 10 10 IRR 14.99% 13.51% 12.74% 13.26% 12.93% E-A C-A В-А D-A D-B Delta IRR 9.68% 8.88% 11.97% 11.78% 10.90% C-E B-E D-E В-С D-C Delta IRR 18.90% 16.44% 14.29% 16.79% 14.71% Which project should be selected if MARR is 10% (mutually exclusive)? D OA Oc OB
The Profitability Index of a project is 1.28 and its cost of investment is 250000. The NPV of the project is O a. 65000 O b. 75000 c. 70000 O d. 80000
A company is looking at five different potential projects, but it can only do one of them. Which project should the company select? For this question, use the following information: Project A B. D Initial Investment -3,300 -6,500 -5,300 -7,000 -5,500 Annual Benefit 650 1,200 950 1,250 1,000 Salvage Value 150 425 300 1,000 200 Useful life 10 10 10 10 10 IRR 14.99% 13.51% 12.74% 13.26% 12.93% E-A C-A B-A D-A D-B Delta IRR 9.68% 8.88% 11.97% 11.78% 10.90% C-E B-E D-E B-C D-C Delta IRR 18.90% 16.44% 14,29% 16.79% 14.71% Which project should be selected if MARR is 10% (mutually exclusive)? A OD OB OE
Tiffany Co. is analyzing two projects for the future. Assume that only one project can be selected. Project Y Project X Cost of machine P680,000 P600,000 Net cash flow: Year 1 240,000 40,000 Year 2 240,000 260,000 Year 3 240,000 260,000 Year 4 0 200,000 If the company is using the payback period method and it requires a payback of three years or less, which project should be selected? Group of answer choices Project Y. Project Y because it has a lower initial investment. Both X and Y are acceptable projects. Project X. Neither X nor Y is an acceptable project.
Use the data below for problems 6 to 10. YearProj YProj Z 0($420,000)($420,000) 1400,000182,000 2185,000156,000 3—146,000 4—175,000 The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have an 11% cost of capital. 6. What is each project’s initial NPV without replication? 7. What is each project’s equivalent annual annuity? 8. Now apply the replacement chain approach to determine the shorter projects’ extended NPV. Which project should be chosen? 9. Now assume that the cost to replicate Project Y in 2 years will increase to $600,000 because of inflationary pressures. How should the analysis be handled now, and which project should be chosen?
Consider the following two mutually exclusive investment projects:Project Cash Flowsn A B 0 -$4,000 -$8,5001 $400 $11,5002 $7,000 $400Assume that the MARR = 15%.(a) Using the NPW criterion, which project would you select?(b) On the same chart, sketch the PW(i) function for each alternative fori = 0% and 50%. For what range of i would you prefer Project B?
Coffer Company is analyzing two potential investments. Project X Cost of machine Net cash flow: Year 1 Year 2 $ 85,470 Project Y $ 65,000 33,000 33,000 3,000 30,000 Year 3 Year 4 33,000 0 • 30,000 25,000 If the company is using the payback period méthod, and it requires a payback period of three years or less, which project(s) should be selected? Multiple Choice Project Y. Project X. Both X and Y are acceptable projects. Neither X nor Y is an acceptable project.