Objective: This case deals with the capital budgeting techniques of Net Present Value (i.e. NPV) andInternal Rate of Return (i.e. IRR), Payback Period and Profitability Index.In this case, students will compare seven projects considering the are dependent projects using NPV andIRR, Pay back Period and Pl and choose the best project. They will learn about NPV and IRR methods andtheir advantages and disadvantages. Students will also learn the weakness of the IRR method whencomparing two or more projects.Finally, they will evaluate these projects assuming that the projects are independent projects ratherthan mutually exclusive ones. This is a hands-on experience for students who want to delve into projectvaluation.ProjectsYear ProjectAProject Project Project Project Project ProjectDBEFG-2000-1500-2000-2500-2000-8000-30001 2001001000100015020030023502008001000160400600350010060010001906009004650200200100020080012005800400200100060010001500695060050100015120018007110060010010001601400210081250800130100017016002400140090052100018018002700101550100013100014020003000WACC for your capital is 20%Maximum Payback period for independent projects is 5 Years.Required:Evaluate on the basis of NPV, IRR, Payback Period and Profitability index1. If all these projects are Mutually Exclusive (dependent)2. If all These projects are independent projects.

There are two types of projects: Independent projects. Mutually exclusive projects. Independent…

WACC for your capital is 20% Maximum Payback period for independent projects is 5 Years. Required: Evaluate on the basis of NPV, IRR, Payback Period and Profitability index 1. If all these projects are Mutually Exclusive (dependent) 2. If all These projects are independent projects.

WACC for your capital is 20% Maximum Payback period for independent projects is 5 Years. Required: Evaluate on the basis of NPV, IRR, Payback Period and Profitability index 1. If all these projects are Mutually Exclusive (dependent) 2. If all These projects are independent projects.

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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Similar questions

A company has an 11% WACC and is considering twomutually exclusive investments (that cannot be repeated) with the following cash flows: a. What is each project’s NPV?b. What is each project’s IRR?c. What is each project’s MIRR? (Hint: Consider Period 7 as the end of Project B’s life.)d. From your answers to parts a, b, and c, which project would be selected? If the WACCwas 18%, which project would be selected?
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow at 2% per year for every year after that. a. Which investment has the higher IRR? b. Which investment has the higher NPV when the cost of capital is 7%? c. In this case, when does picking the higher IRR give the correct answer as to which investment is the better opportunity?
Give typing answer with explanation and conclusion Project S requires an initial outlay at t = 0 of $13,000, and its expected cash flows would be $5,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $28,000, and its expected cash flows would be $13,850 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? Select the correct answer. a. Neither Project S nor L, because each project's NPV < 0. b. Both Projects S and L, because both projects have NPV's > 0. c. Project S, because the NPVS > NPVL. d. Both Projects S and L, because both projects have IRR's > 0. e. Project L, because the NPVL > NPVS.
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?
Project S requires an initial outlay at t= 0 of $16,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t= 0 of $27,500, and its expected cash flows would be $10,150 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Select the correct answer. Ca. Project S, because the NPVs > NPVL. Ob. Both Projects S and L, because both projects have IRR's > 0. Oc. Both Projects S and L, because both projects have NPV's > 0. Od. Project I because the NPVL > NPVs. Oe. Neither Project S nor L, because each project's NPV < 0.
3. Lopez Industries has identified the following two mutually exclusive capital investment projects: Year Project A Project B 0 1 2 3 4 -16000 400 800 13000 -15500 12500 8000 800 14000 800 What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11%, what is the NPV for each of these projects? Which project should the firm accept if they apply the NPV rule?
c) Find the IRR and MIRR of the following project and make your decision. Assume that the project's cost of capital (or WACC) is 4%.Project X that costs $30 million is expected to generate $13m per year for 3 years. Is this project acceptable?
Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $37,000, and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend? Select the correct answer. a. Project L, because the NPVL > NPVS. b. Neither Project S nor L, because each project's NPV < 0. c. Both Projects S and L, because both projects have NPV's > 0. d. Both Projects S and L, because both projects have IRR's > 0. e. Project S, because the NPVS > NPVL.
IRR: Mutually exclusive projects Nile Inc. wants to choose the better of two mutually exclusive projects that expand warehouse capacity. The projects' cash flows are shown in the following table: . The cost of capital is 18%. a. The internal rate of return (IRR) of project X is %. (Round to two decimal places.) Data table Is project X acceptable on the basis of IRR? (Select the best answer below.) (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Yes O No Project X $500,000 Project Y $310,000 The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Initial investment (CF) Is project Y acceptable on the basis of IRR? (Select the best answer below.) Year (t) Cash inflows (CF,) $120,000 $140,000 $105,000 $60,000 1 $100,000 O Yes $160,000 O No $170,000 $190,000 b. Which project is preferred? (Select the best answer below.) $250,000 $30,000 OA. Project X N 34 5
4. If the terminal balance of a 5-year project at 10% s0 then which one below is true? A. The IRR of the project is less than 10% B. The future worth of the project is greater than 0 C. Discounted payback perlod is 5 years OD. The present worth of the project is less than 0 5 In an incremental IRR analysis, which analysis period should be used to compare 2 mutually altemative projects with 3 and 4 years of useful lives? (Assume an indefinite analynis perlod and that the projects are repeatable) O A. B years O B. 12 years OC. 4 years D. 3 years
The Star company, is considering two mutually exclusive projects. The expected cash flow values for each project are as follows: Period 0 1 2 3 4 Project A ($2.000.000) 900.000 600.000 500.000 800.000 Project B ($2.000.000) 700.000 700.000 700.000 700.000 With the required rate of return for these projects at 15%, calculate: a. Payback Period (PB), Net Present Value (NPV) and Internal Rate of Return (IRR) for both projects. b. Which project would you choose? Describe your answer
Can you show me how this is done? Kepner Inc, is considering a capital investment project. that will provide annual cash flows of $31,248, requires an initial investment of $62,241, and the PV of cash flows is $106,796. What is the profitability index of the project? Round your answer 2 decimal places Selected Answer: 76 Correct Answer: 1.72 ± 0.01

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