Ivanhoe Manufacturing is evaluating two capital projects. The company's choice will be based on the profitability index.Project #1 has a present value of cash flows of $216,000 and a net initial investment of $194,400 while Project #2 has apresent value of future cash flows of $885,600 and a net initial investment of $864,000.Click here to view the factor table.Using the present value tables, which project will Ivanhoe choose? (Round answers to 3 decimal places, e.g. 2.575.)Project #1Project #2Profitability IndexIvanhoe should choosesince its profitability index is* than the profitability index of

Profitability Index: The profitability index is a measure of an investment or project's…

Using the present value tables, which project will Ivanhoe choose? (Round answers to 3 decimal places, e.g. 2.575.) Project #1 Project #2 Profitability Index Ivanhoe should choose • since its profitability index is * than the profitability index of

Using the present value tables, which project will Ivanhoe choose? (Round answers to 3 decimal places, e.g. 2.575.) Project #1 Project #2 Profitability Index Ivanhoe should choose • since its profitability index is * than the profitability index of

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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Consider two project alternatives, project I and project II, with their payoffs and their associated probabilities outlined in the following table: Project I Project II Payoff 10 15 20 Probability 0.1 0.8 0.1 Payoff 1. Compute RRI for each project; 2. Would you select project I or project II? Why. 5 10 14 Probability 0.2 0.3 0.5
Explain how the internal rate of return and net present value are related. If a project has an NPV of $50,000 using a 10 percent discount factor, what does this imply about that project's IRR?
d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Using excel how to I find the PI for this question?
Carter Company is considering three investment opportunities with the following accounting rates of return: Project Y Project X 13.25% Project Z 10.47% ARR 6.58% Use the decision rule for ARR to rank the projects from most desirable to least desirable. Carter Company's required rate of return is 8%. (1 = most desriable and 3= least desirable. Select whether each project should be accepted or rejected.) C Rank Accept/Reject Project X Project Y Project Z @ # * $ IOL 4 % 2 6 4 & 7 4 8 ( 9 ➤W O
5. NPV profiles An NPV profile plots a project's NPV at various costs of capital, labeled "A" and "B" in the graph. A project's NPV profile is shown as follows. Identify the range of costs (ranges labeled "A" and "B") of capital that a firm would use to accept and reject this project. A B NPV (Dollars) 400 300 200 100 0 -100 -200 A 0 2 4 6 8 10 10 12 14 16 18 20 COST OF CAPITAL (Percent) True B True or False: The NPV and IRR methods can lead to conflicting decisions for mutually exclusive projects. False
Suppose that you found the probabilities and expected NPVs of 3 scenarios for a timing option: E(NPV) probability $0.15 0.30 $10.35 0.50 $42 0.20 1. What is the expected NPV of the timing option? Show your work. 2. Suppose, that the expected NPV of the project if proceeding today is $14. Should the project be delayed based on your finding in part 1 or should the management implement it today? Briefly explain.
Assume you are risk-averse and have the following three choices. Standard Deviation Project A B C Expected Value $ 2,520 2,930 2,480 $ 1,420 1,050 1,040 a. Compute the coefficient of variation for each. Note: Round your answers to 3 decimal places. Project A B C Coefficient of Variation b. Which project will you select? O Project C O Project A O Project B
Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investment I Estimated BTIRR Investment II Optimistic 0.20 0.15 0.20 Most likely 0.60 0.10 0.15 Pessimistic 0.20 0.05 0.05 1.00 Riskless is aware that the pattern of returns for Investment II looks very attractive relative to Investment I; however, he believes that Investment II could be more risky than Investment I. He would like to compare the two investments considering both the risk and return on each. Required: a. Compute BTIRR under each of the three possible scenarios. b. Compute variance and standard deviation of the IRRs.
Basic NPV methods tell us that the value of a project today is NPV0. Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1. Why then do we see some firms choosing to defer taking on a project. Be complete and thorough in your answer.
Subject :- Accounting
You are setting up the shown ONE-WAY data table to calculate the NPV of a hotel project at various rates of return (8.25% to 12.5%). What range would you highlight before selecting: Data → What-if Analysis → Data Table… Question 51 options: B15:C32 C14:C32 B14:B32 B14:C32
The net present value (NPV) method estimates how much a potential project will contribute to Business ethics/Shareholders Wealth/Employee Benefits, and it is the best selection criterion. The Smaller/Larger the NPV, the more value the project adds; and added value means a Higher/Larger stock price. In equation form, the NPV is defined as: CFt is the expected net cash flow at Time t, r is the project's risk-adjusted cost of capital, N is its life, and cash outflows are treated as negative cash flows. The NPV calculation assumes that cash inflows can be reinvested at the project's risk-adjusted RD/RS/WACC. When the firm is considering independent projects, if the project's NPV exceeds zero the firm should Accept/Reject the project. When the firm is considering mutually exclusive projects, the firm should accept the project with the Lowest Positive/Lowest Negative/Highest Postive/ Highest Negative NPV.Quantitative Problem: Bellinger Industries is considering two projects for inclusion…

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