a)
To determine:
Payback period of each project.
Introduction:
Every investment requires a time period to pay back the cost of investment. The time period taken to recover the cost of an investment is known as the payback period.
b)
To determine:
The
Introduction:
The difference between the present value of cash inflows and the present value of
c)
To determine:
The Net
Introduction:
The difference between the present value of cash inflows and the present value of cash outflows over a period of time is known as the Net Present value.
d)
To determine:
The
Introduction:
Internal Rate of Return is a measure used in the capital budgeting which estimates the profitability of potential investments. IRR is computed as a discount rate that makes the net present value of all cash flows from an investment as zero.
e)
To determine:
Rank the projects based on the payback period, NPV and IRR values.
Introduction:
Every investment requires a time period to pay back the cost of investment. The time period taken to recover the cost of an investment is known as the payback period. The difference between the present value of cash inflows and the present value of cash outflows over a period of time is known as the Net Present value. Internal
f)
To determine:
The Net Present Value for each project.
Introduction:
The difference between the present value of cash inflows and the present value of cash outflows over a period of time is known as the Net Present value.
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Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
- Capital rationing decision involving four proposals Kopecky Industries Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on allprojects. 1f the preceding standards are met, the net present value method and presentvalue indexes are used to rank the remaining proposals. Instructions Compute the present value index for each oldie proposals in part (4). Round to two decimal places.arrow_forwardNet present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The wind turbines require an investment of 887,600, while the biofuel equipment requires an investment of 911,100. No residual value is expected from either project. Instructions 1. Compute the following for each project: A. The net present value. Use a rate of 6% and the present value of an annuity table appearing in Exhibit 5 of this chapter. B. A present value index. (Round to two decimal places.) 2. Determine the internal rate of return for each project by (A) computing a present value factor for an annuity of 1 and (B) using the present value of an annuity of 1 table appearing in Exhibit 5 of this chapter. 3. What advantage does the internal rate of return method have over the net present value method in comparing projects?arrow_forwardProject S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?arrow_forward
- The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of 50 million on a large-scale, integrated plant that will provide an expected cash flow stream of 8 million per year for 20 years. Plan B calls for the expenditure of 15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of 3.4 million per year for 20 years. The firms cost of capital is 10%. a. Calculate each projects NPV and IRR. b. Set up a Project by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant. What are the NPV and the IRR for this Project ? c. Graph the NPV profiles for Plan A, Plan B, and Project .arrow_forwardCash payback method Lily Products Company is considering an investment in one of two new product lines. The investment required for either product line is 540,000. The net cash flows associated with each product are as follows: A. Recommend a product offering to Lily Products Company, based on the cash payback period for each product line. B. Why is one product line preferred over the other, even though they both have the same total net cash flows through eight periods?arrow_forwardsolve a,b and c please asap. Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table:Cash inflows (CFt)Year Project A Project B1 $10,000 $40,0002 $20,000 $30,0003 $30,000 $20,0004 $40,000 $10,0005 $20,000 $20,000a. Determine the payback period of each project. b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in? c. Explain why one of the projects is a better choice than the otherarrow_forward
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