The Net Present Value for each project and its acceptability. Introduction: The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

Question

Part A Stark Enterprises is considering two mutually exclusive projects. The relevant cash flows for each project are shown in the table below. Project Alpha Project Beta Initial Investment $50,000 $60,000 Year Net Cash Inflows 1 $22,000 $35,000 2 $22,000 $25,000 3 $22,000 $20,000 4 $22,000 $15,000 a. Suppose the company has a cost of capital of 12%. Determine the Net Present Value (NPV) of each project. Which project is preferred and why? b. What is the discounted payback period for each project? C. why? If you were to guess the IRR for each project would it be above or below 12% and

Answer 1

Question

Chapter 10, Problem 10.23P

a)

Summary Introduction

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

b)

Summary Introduction

To determine:

The Internal rate of return for each of the project.

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, which makes the net present value of all cash flows from an investment as zero.

c)

Summary Introduction

To determine:

The Net Present Value profiles 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.

NPV=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+CF4(1+r)4−I0 (1)

NPV profile is a graphic representation of the NPV of a project at different discount rates.

d)

Summary Introduction

To determine:

Evaluate the projects based on the NPV, IRR and NPV profile values.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a period is known as the Net Present value. 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. NPV profile is a graphic representation of the NPV of a project at different discount rates.

e)

Summary Introduction

To determine:

The pattern of cash inflows to the projects.

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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Part A Stark Enterprises is considering two mutually exclusive projects. The relevant cash flows for each project are shown in the table below. Project Alpha Project Beta Initial Investment $50,000 $60,000 Year Net Cash Inflows 1 $22,000 $35,000 2 $22,000 $25,000 3 $22,000 $20,000 4 $22,000 $15,000 a. Suppose the company has a cost of capital of 12%. Determine the Net Present Value (NPV) of each project. Which project is preferred and why? b. What is the discounted payback period for each project? C. why? If you were to guess the IRR for each project would it be above or below 12% and

Problem 1: Fitch Industries is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects-M and N. The relevant cash flows for each project are shown in the following table. The firm's cost of capital is 14%. Project M Project N Initial investmecnt (CF) 528,500 527,000 Year (t) Cash inflows (CF) $10,000 10,000 10,000 10,000 $11,000 2. 10,000 9,000 4. 8,000 a. Calculate each project's payback period. b. Calculate the net present value (NPV) for each project. c. Calculate the internal rate of return (IRR) for each project. d. Summarize the preferences dictated by each measure you calculated and indicate which project you would recommend. Explain why.

Queens Soliderate is considering two mutually exclusive projects. The firm, which has a 12% cost of capital, has estimated its cash flows as shown in the following table. Project A Project B Initial investment (CF0) $130,000 $85,000 Year (t) Cash inflows (CFt) 1 $25,000 $40,000 2 35,000 35,000 3 45,000 30,000 4 50,000 10,000 5 55,000 5,000 a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. Required to answer. Single line text.

Answer 2

Question

Chapter 10, Problem 10.23P

a)

Summary Introduction

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

b)

Summary Introduction

To determine:

The Internal rate of return for each of the project.

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, which makes the net present value of all cash flows from an investment as zero.

c)

Summary Introduction

To determine:

The Net Present Value profiles 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.

NPV=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+CF4(1+r)4−I0 (1)

NPV profile is a graphic representation of the NPV of a project at different discount rates.

d)

Summary Introduction

To determine:

Evaluate the projects based on the NPV, IRR and NPV profile values.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a period is known as the Net Present value. 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. NPV profile is a graphic representation of the NPV of a project at different discount rates.

e)

Summary Introduction

To determine:

The pattern of cash inflows to the projects.

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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Answer 3

Question

Chapter 10, Problem 10.23P

a)

Summary Introduction

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

b)

Summary Introduction

To determine:

The Internal rate of return for each of the project.

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, which makes the net present value of all cash flows from an investment as zero.

c)

Summary Introduction

To determine:

The Net Present Value profiles 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.

NPV=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+CF4(1+r)4−I0 (1)

NPV profile is a graphic representation of the NPV of a project at different discount rates.

d)

Summary Introduction

To determine:

Evaluate the projects based on the NPV, IRR and NPV profile values.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a period is known as the Net Present value. 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. NPV profile is a graphic representation of the NPV of a project at different discount rates.

e)

Summary Introduction

To determine:

The pattern of cash inflows to the projects.

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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Answer 4

Question

Chapter 10, Problem 10.23P

a)

Summary Introduction

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

b)

Summary Introduction

To determine:

The Internal rate of return for each of the project.

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, which makes the net present value of all cash flows from an investment as zero.

c)

Summary Introduction

To determine:

The Net Present Value profiles 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.

NPV=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+CF4(1+r)4−I0 (1)

NPV profile is a graphic representation of the NPV of a project at different discount rates.

d)

Summary Introduction

To determine:

Evaluate the projects based on the NPV, IRR and NPV profile values.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a period is known as the Net Present value. 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. NPV profile is a graphic representation of the NPV of a project at different discount rates.

e)

Summary Introduction

To determine:

The pattern of cash inflows to the projects.

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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Answer 5

Chapter 10, Problem 10.23P

a)

Summary Introduction

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

b)

Summary Introduction

To determine:

The Internal rate of return for each of the project.

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, which makes the net present value of all cash flows from an investment as zero.

c)

Summary Introduction

To determine:

The Net Present Value profiles 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.

NPV=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+CF4(1+r)4−I0 (1)

NPV profile is a graphic representation of the NPV of a project at different discount rates.

d)

Summary Introduction

To determine:

Evaluate the projects based on the NPV, IRR and NPV profile values.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a period is known as the Net Present value. 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. NPV profile is a graphic representation of the NPV of a project at different discount rates.

e)

Summary Introduction

To determine:

The pattern of cash inflows to the projects.

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.

Answer 6

Chapter 10, Problem 10.23P

a)

Summary Introduction

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

Answer 7

Chapter 10, Problem 10.23P

a)

Summary Introduction

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

Answer 8

b)

Summary Introduction

To determine:

The Internal rate of return for each of the project.

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, which makes the net present value of all cash flows from an investment as zero.

Answer 9

b)

Summary Introduction

To determine:

The Internal rate of return for each of the project.

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, which makes the net present value of all cash flows from an investment as zero.

Answer 10

c)

Summary Introduction

To determine:

The Net Present Value profiles 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.

NPV=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+CF4(1+r)4−I0 (1)

NPV profile is a graphic representation of the NPV of a project at different discount rates.

Answer 11

c)

Summary Introduction

To determine:

The Net Present Value profiles 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.

NPV=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+CF4(1+r)4−I0 (1)

NPV profile is a graphic representation of the NPV of a project at different discount rates.

Answer 12

d)

Summary Introduction

To determine:

Evaluate the projects based on the NPV, IRR and NPV profile values.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a period is known as the Net Present value. 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. NPV profile is a graphic representation of the NPV of a project at different discount rates.

Answer 13

d)

Summary Introduction

To determine:

Evaluate the projects based on the NPV, IRR and NPV profile values.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a period is known as the Net Present value. 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. NPV profile is a graphic representation of the NPV of a project at different discount rates.

Answer 14

e)

Summary Introduction

To determine:

The pattern of cash inflows to the projects.

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.

Answer 15

e)

Summary Introduction

To determine:

The pattern of cash inflows to the projects.

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.

Answer 16

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Ch. 10.1 - What is the financial managers goal in selecting...Ch. 10.2 - What is the payback period? How is it calculated?Ch. 10.2 - What weaknesses are commonly associated with the...Ch. 10.3 - How is the net present value (NPV) calculated for...Ch. 10.3 - Prob. 10.5RQ Ch. 10.3 - Prob. 10.6RQ Ch. 10.4 - Prob. 10.8RQ Ch. 10.4 - Prob. 10.9RQ Ch. 10.4 - Prob. 10.10RQ Ch. 10.5 - How is a net present value profile used to compare...

The Net Present Value for each project and its acceptability. Introduction: The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

Solution Summary: The author explains the Net Present Value for each project and its acceptability.

Concept explainers

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

To determine:

The pattern of cash inflows to the projects.

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.

Chapter 10 Solutions

The Net Present Value for each project and its acceptability. Introduction: The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

Solution Summary: The author explains the Net Present Value for each project and its acceptability.

Concept explainers

To determine: The Net Present Value for each project and its acceptability. Introduction: The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

To determine: The pattern of cash inflows to the projects. 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.

Chapter 10 Solutions

To determine:

The Net Present Value for each project and its acceptability.

Introduction:

The difference over the present value of cash inflows and the present value of cash outflows over a time period is known as the Net Present value.

To determine:

The pattern of cash inflows to the projects.

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.