Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 10, Problem 6P
Summary Introduction
To determine: The discounted payback period of the project.
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Using image:
a-1. What is the payback period for each project
a-2. If you apply the payback criterion, which investment will you choose?
b-1. What is the discounted payback period for each project?
b-2. If you apply the discounted payback criterion, which investment will you choose?
c-1. What is the NPV for each project?
c-2. If you apply the NPV criterion, which investment will you choose?
d-1. What is the IRR for each project?
d-2. If you apply the IRR criterion, which investment will you choose?
e-1. What is the profitability index for each project?
e-2. If you apply the profitability index criterion, which investment will you choose?
f. Based on your answers in (a) through (e), which project will you finally choose?
How the regular payback periods and discounted payback periods for projects are calculated, after calculating NPV, IRR and MIRR
5. IRR (S5.3) Write down the equation defining a project's internal rate of return (IRR). In practice, how is IRR calculated?
Chapter 10 Solutions
Financial Management: Theory & Practice
Ch. 10 - Define each of the following terms:
Capital...Ch. 10 - What types of projects require the least detailed...Ch. 10 - Explain why the NPV of a relatively long-term...Ch. 10 - When two mutually exclusive projects are being...Ch. 10 - Suppose a firm is considering two mutually...Ch. 10 - A project has an initial cost of 40,000, expected...Ch. 10 - Refer to Problem 10-1. What is the project’s IRR?
Ch. 10 - Refer to Problem 10-1. What is the projects MIRR?Ch. 10 - Prob. 4PCh. 10 - Prob. 5P
Ch. 10 - Prob. 6PCh. 10 - Your division is considering two investment...Ch. 10 - Edelman Engineering is considering including two...Ch. 10 - Davis Industries must choose between a gas-powered...Ch. 10 - Project S has a cost of 10,000 and is expected to...Ch. 10 - Your company is considering two mutually exclusive...Ch. 10 - Prob. 12PCh. 10 - Cummings Products is considering two mutually...Ch. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Shao Airlines is considering the purchase of two...Ch. 10 - The Perez Company has the opportunity to invest in...Ch. 10 - Filkins Fabric Company is considering the...Ch. 10 - Prob. 19PCh. 10 - The Aubey Coffee Company is evaluating the...Ch. 10 - Your division is considering two investment...Ch. 10 - Prob. 22PCh. 10 - Start with the partial model in the file Ch10 P23...Ch. 10 - What is capital budgeting?Ch. 10 - Prob. 2MCCh. 10 - c. (1) Define the term net present value (NPV)....Ch. 10 - Prob. 4MCCh. 10 - Draw NPV profiles for Franchises L and S. At what...Ch. 10 - What is the underlying cause of ranking conflicts...Ch. 10 - Define the term modified IRR (MIRR). Find the...Ch. 10 - What does the profitability index (PI) measure?...Ch. 10 - (1) What is the payback period? Find the paybacks...Ch. 10 - Prob. 10MCCh. 10 - In an unrelated analysis, you have the opportunity...Ch. 10 - You are also considering another project that has...
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Similar questions
- Calculate for each project: The payback period for each project The Net Present Value (NPV) The Profitability index Which project should be accepted and why? PLEASE SEE ATTACHED PHOTO TO ANSWER THE ABOVE QUESTIONSarrow_forwardWhat is the equation to calculate the payback period?arrow_forwardWhat will happen to the internal rate of return (IRR) of a project if the discount rate is decreased from 8% to 6%? Select one: a. We cannot determine the direction of the effect on IRR from the information provided. b. The change in discount rate will not affect IRR. c. IRR will always increase. d. IRR will always decrease.arrow_forward
- How can the money released from a project be reinvested to yield a rate of return equal to that received from the project?arrow_forwardAccording to the Discounted Payback method, which project should be selected? What is the chief disadvantage of the Discounted Payback method? Why would anyone want to use the Discounted Payback method?arrow_forwardIf the net present value of a project is positive, the project earns a return that is Group of answer choices - equal to the required rate or return - greater than the required rate of return - equal to the accounting rate of return - greater than the accounting rate of returnarrow_forward
- Consider two project alternatives, project I and project II, with their payoffs and their associated probabilities outlined in the following table: Project I Project II Payoff 10 15 20 Probability 0.1 0.8 0.1 Payoff 1. Compute RRI for each project; 2. Would you select project I or project II? Why. 5 10 14 Probability 0.2 0.3 0.5arrow_forwardIf the internal rate of return is greater than the Blank______, the project should be accepted. Multiple choice question. inflation rate risk-free rate payback period required returnarrow_forwardWhen comparing two projects with different lives, why do you compute an annuity with an equivalent present value (PV) to the net present value (NPV)? A. so that the projects can be compared on their cost or value created per year B. to reduce the danger that changes in the estimate of the discount rate will lead to choosing the project with a shorter time frame C. so that you can see which project has the greatest net present value (NPV) D. to avoid complications arising from alternating cash inflows and outflows O E. to ensure that cash flows from the project with a longer life that occur after the project with the shorter life has ended are consideredarrow_forward
- Create a chart reflecting the conventional payback period?arrow_forwardThe internal rate of return (IRR) is the: Multiple Choice discount rate that results in a zero net present value for the project. discount rate that causes a project's aftertax income to equal zero.arrow_forwardWhat is the formula for calculating present value of a project? If you are given annual profit in perpetuity, initial cost, tax rate, unlevered cost of equity, and how much of the project cost is finance through debt?arrow_forward
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