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 $920,000?
Wonder Plc is considering two investment projects in another city and the estimated cash flows are as follows: Year Hotels £(m) Housing £ (m) 0 Capital outlay (200) (250) Net cash flows 1 130 130 2 60 120 3 80 120 4 100 80 4 Residual value 20 40 The company’s cost of capital is 15%. Required: a) Assess the viability of these two projects using NPV and Payback period as the appraisal techniques and advise Wonder Plc’s Board of Directors accordingly. b) Explain the importance of Payback period to the CEO.
Assume that the company you chose in part a) has been researching the prospects for a range of new investmentopportunities. The cash flow details of two promising projects (which are mutually exclusive) are given below:Year Projected Cash Flows (£m) A B0 -85 -901 10 402 20 353 25 74 65 40Assume that the company’s cost of capital is currently at 10.25 per cent.Assume that all cash flows arise at year ends and straight-line depreciation is used over the life of the project with zeroscrap value. Ignore taxation and inflation.1. Calculate the Payback Period (PBP), Accounting Rate of Return (ARR) and the Net Present Value (NPV) ofthe project. Evaluate the results of these calculations and recommend with reasons which project should beadopted.
Consider the following projects: Cash Flows ($) 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
Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table Cash flows Project A Project B Project CInitial investment (CF0) $60,000 $100,000 $110,000Cash inflows (CFt), t = 1 to 5 $20,000 $ 31,500 $ 32,500 e. Calculate the internal rate of return (IRR) for each project. f. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why.
Wonder Plc is considering two investment projects in another city and the estimated cash flows are as follows: Year Hotels$(m) Housing $(m) 0 Capital outlay (200) (250) Net cash flows 1 130 130 2 60 120 3 80 120 4 100 80 4 Residual value 20 40 The company’s cost of capital is 15%. (a) Assess the viability of these two projects using NPV and Payback period as the appraisal techniques and advise Wonder Plc’s Board of Directors accordingly. (b) Explain the importance of Payback period to the CEO.
A firm calculates for a new project the following cash flows to shareholders over the years 0 to 2, $-1,604,$1,262, $1,502 and to other stakeholders $-147, $-220, $-189. The discount rate is 6.5% and the social distance is 27%. What is the SNPV for the project? (Answer in $ with no decimal places, so 150123 for $150,123). 496 margin of error +/- 2%

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