You are evaluating the following four projects: Project A B C D Beta 1.80 1.20 OB OC OD 1.00 0.50 Projected (or Expected) Return 18.0% 16.8% 11.5% 9.5% Your company's current practice is to apply its WACC of 12% as a single hurdle rate to all projects. Under your company's current practice, which project(s) of the four projects above would be incorrectly rejected? Currently, the 3-month Treasury bill rate is 3%, and the market risk premium is 10%. (Hint: Measure the RADRS using the CAPM)

You are evaluating the following four projects: Project A B C D Beta 1.80 1.20 OB OC OD 1.00 0.50 Projected (or Expected) Return 18.0% 16.8% 11.5% 9.5% Your company's current practice is to apply its WACC of 12% as a single hurdle rate to all projects. Under your company's current practice, which project(s) of the four projects above would be incorrectly rejected? Currently, the 3-month Treasury bill rate is 3%, and the market risk premium is 10%. (Hint: Measure the RADRS using the CAPM)

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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A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$450 $50 $50 $50 $200 $200 Project 2 -$550 $200 $200 $150 $150 $150 Which project would you recommend? Select the correct answer. a. Both Projects 1 and 2, since both projects have IRR's > 0. b. Neither Project 1 nor 2, since each project's NPV < 0. c. Both Projects 1 and 2, since both projects have NPV's > 0. d. Project 1, since the NPV1 > NPV2. e. Project 2, since the NPV2 > NPV1.
A firm with a WACC of 10% is considering the following mutually exclusive projects: 1 2 3 5 + ㅓ Project 1 Project 2 -$300 $60 $60 $60 $175 $175 -$550 $250 $250 $150 $150 $150 Which project would you recommend? Select the correct answer. Oa. Both Projects 1 and 2, since both projects have NPV's > 0. Ob. Both Projects 1 and 2, since both projects have IRR's > 0. Oc. Project 2, since the NPV2 > NPV1. Od. Neither Project 1 nor 2, since each project's NPV NPV2.
Project A: IRR = 4%, Initial cost =100, NPV = 200 Project B: IRR = 14%, Initial cost =200, NPV = 230 Project C: IRR = 6%, Initial cost = 300, NPV = 300 Project D: IRR = 22%, Initial cost = 100, NPV = 260 If you can only choose 1 of the above projects above, which one should you choose? Project A Project B Project C Project D Not enough information to determine which project is preferred
How do I determine which is the correct answer for this problem? A company estimates that an average-risk project has a WACC of 10 percent, a below-average-risk project has a WACC of 8 percent, and an above-average-risk project has a WACC of 12 percent. Which of the following independent projects should the company accept? a. Project A has average risk and an IRR = 9 percent. b. Project B has below-average risk and an IRR = 8.5 percent. c. Project C has above-average risk and an IRR = 11 percent. d. All of the projects above should be accepted. e. None of the projects above should be accepted. Please answer fast I give you upvote.
A firm which uses its WACC for average-risk projects adds and subtracts 3 percentage points for above-average and below-average risk projects, respectively. If its WACC is 8%, which of the following projects should be accepted and why? Project 1: E(r)= 9%; Riskiness: Average; Project 2: E(r)= 9% ; Riskiness: Above Average; Project 3: E(r)= 11%; Riskiness: Average; Project 4: E(r)= 5%; Riskiness: Below Average; Project 5: E(r)= 8%; Riskiness: Below Average; Project 6: E(r)= 10%; Riskiness: Above Average; O A. Project 3 O B. Project 1 OC. Project 5 O D. Project 6
You are the head of the project selection team at SIMSOX. Your team is considering three different projects. Based on past history. SIMSOX expects at least a rate of return of 23 percent. Given the following information for each project, which one should be SIMSOX's first priority? Should SIMSOX fund any of the other projects? (Use the NPV function in Excel to solve this problem. Negative amount should be indicated by a minus sign.) Project: Dust Devils Year Investment Revenue Stream 550, 000 1 35,000 275,000 375,000 2 Project: Ospry Year Investment Revenue Stream 300,000 1 30,000 2 30,000 30,000 75,000 Project: Voyagers Year Investment Revenue Stream 85,000 1 25,000 25,000 60,000 2 3 4 55,000 145,000 The NPV for Dust Devils is The NPV for Ospry is The NPV for Voyagers is How many projects should be funded? undefined
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The Ulrich Corporation is trying to choose between the following two mutually exclusive design projects. If the required rate of return is 10%, which of the following statements is correct? (a) Select A2 because it has a higher PI.(b) Select A2 because it has a higher RO R. (c) Select Al because its incremental PI exceeds 1.(d) Not enough information to decide.
Coore Manufacturing has the following two possible projects. The required return is 12 percent. Year Project Y Project Z 0 -$27,500 -$55,000 1 13,500 19,500 234 2 11,900 26,000 3 14,300 17,500 9,900 24,000 a. 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.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which, if either, of the projects should the company accept? a. Project Y Project Z 1.38 ง b. Project Y 3 decimal places required. Project Z c. Accept project x
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Project Analysis. Assume that you are evaluating the following three mutually exclusive projects: A. Complete the following analyses. (For the last two lines, Terminal Value, please write in the dollar amount of the terminal value.) B. Compare and explain the conflicting rankings of the NPVs and TRRs versus the IRRs. C. Using different discount rates, is it possible to get different rankings within the NPV calculation? Why or why not? D. If 10 percent is the required return, which project is preferred? E. Which is the fairer representation of these two projects, TRR or IRR? Why?
A firm evaluates all of its projects by applying the IRR rule. If the required return is 14 percent, should the firm accept the following project? Input area: Required Return Year 0 Year 1 Year 2 Year 3 (Use cells A6 to B10 from the given information to complete this question.) Output area: 14% ($41,000) $20,000 $23,000 $14,000 IRR

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