Wonder Plc is considering two investment projects in another city and theestimated cash flows are as follows:YearHotelsHousing£ (m)£ (m)(200)(250)0Capital outlayNet cash flows11301302601203801204100804Residual value2040The company's cost of capital is 15%.Required:(a) Assess the viability of these two projects using NPV and Payback periodas the appraisal techniques and advise Wonder Plc's Board of Directorsaccordingly

Step 1: Compute for the Net Present Value of each project Net Present Value = Total Present Value of…

Answered: Wonder Plc is considering two…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
Your division is considering two investment projects, each of which requires an up-front expenditure of 15 million. You estimate that the investments will produce the following net cash flows: a. What are the two projects net present values, assuming the cost of capital is 5%? 10%? 15%? b. What are the two projects IRRs at these same costs of capital?
Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?
Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
Assume that the company you chose in part a) has been researching the prospects for a range of new investmentopportunities. The cash flow details of two promising projects (which are mutually exclusive) are given below:Year Projected Cash Flows (£m) A B0 -85 -901 10 402 20 353 25 74 65 40Assume that the company’s cost of capital is currently at 10.25 per cent.Assume that all cash flows arise at year ends and straight-line depreciation is used over the life of the project with zeroscrap value. Ignore taxation and inflation.1. Calculate the Payback Period (PBP), Accounting Rate of Return (ARR) and the Net Present Value (NPV) ofthe project. Evaluate the results of these calculations and recommend with reasons which project should beadopted.
Consider the following projects: Cash Flows ($) Project D E CO00 C101 -11,700 23,400 -21,700 37,975 Assume that the projects are mutually exclusive and that the opportunity cost of capital is 12%. a. Calculate the profitability index for each project. b-1. Calculate the profitability-index using the incremental cash flows. b-2. Which project should you choose?
Consider cash flows for the following investment projects (MARR = 15 %). Suppose that projects are mutually exclusive. Which project would you select based on AE criterion? Project A -3000 Project B -3500 ProjectC 4000 1400 1100 1500 2. 1650 1000 1500 3. 1300 1000 1800 1800 4 750 1000
(question3 c,d) c) Calculate the profitability index (PI) for each project d) Calculate the internal rate of return (IRR) for each project.
You are considering a project X which has cash flows given below: Year 0 Year 1 Year 2 Project X ($7,000) $40,000 ($40,000) Project X has two IRRs, and its cost of capital is 15%. Which of the following statements best describes Project X? (Hint: draw NPV profile) Group of answer choices No matter what its cost of capital is, it should be accepted. No matter what its cost of capital is, it should be rejected. If the cost of capital would be between the two IRRs, it could be accepted. Since both IRRs are greater than its cost of capital, it should be accepted. All of these statements are not consistent with Project X.
Following is information on two alternative investment projects being considered by Tiger Company. The company requires a 4% return from its investments. Initial investment Net cash flows in: Year 1 Year 2 Year 3 Project X1 Project X2 IRR 21.00 % 12.00 % Project X1 $ (90,000) Yes Yes 30,000 40,500 65,500 Compute the internal rate of return for each of the projects using Excel functions. Based on internal rate of return, indicate whether each project is acceptable. Note: Round your answers to 2 decimal places. Acceptable? Project X2 $ (140,000) 67,500 57,500 47,500
Barry Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR?WACC = 11.55% Year 0 1 2 3 4 5 CFs -$46,900 10,800 21,600 32,400 43,200 54,000 Group of answer choices 25.42% 31.53% 32.18% 39.58% 38.29%

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