Pearson Etext For Foundations Of Finance -- Combo Access Card (10th Edition)
10th Edition
ISBN: 9780135639344
Author: Arthur J. Keown, John D Martin, J. William Petty
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 8SP
(Payback period calculations) You are considering three independent projects: project A, project B, and project C. Given the following
If you require a 3-year payback before an investment can be accepted, which project(s) would be accepted?
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Students have asked these similar questions
1. Calculate the net present value for each project. 2. Calculate the simple rate of return for each product.3. Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why?
Suppose you have to choose between two mutually exclusive investment projects with the following
cash flows (all numbers are in $1,000s):
[image attached]
Both projects have a discount rate of 9%. Determine the Payback Period, Net Present Value (NPV)
and the IRR for each project. Which is the better project based on NPV? And how can you use the
IRR criterion to obtain the correct (i.e., value maximizing) project choice?
t=0
t = 1
t = 2
Project A
-$400
$250
$300
Project B
-$200
$140
$179
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Please answer the following questions in detail, provide examples whenever applicable, provide in-text citations.
(TABLE IMAGE ATTACHED)
What is the payback period on each of the above projects?
Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
If you use a cutoff period of three years, which projects would you accept?
If the opportunity cost of capital is 10%, which projects have positive NPVs?
If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” True or false?
If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? Will it turn down any positive NPV projects?
Chapter 10 Solutions
Pearson Etext For Foundations Of Finance -- Combo Access Card (10th Edition)
Ch. 10 - Why is capital budgeting such an important...Ch. 10 - What are the disadvantages of using the payback...Ch. 10 - Prob. 4RQCh. 10 - What are mutually exclusive projects? Why might...Ch. 10 - Prob. 6RQCh. 10 - When might two mutually exclusive projects having...Ch. 10 - Prob. 1SPCh. 10 - Prob. 2SPCh. 10 - Prob. 3SPCh. 10 - Prob. 4SP
Ch. 10 - (NPV, PI, and IRR calculations) Fijisawa Inc. is...Ch. 10 - (Payback period, NPV, PI, and IRR calculations)...Ch. 10 - (NPV, PI, and IRR calculations) You are...Ch. 10 - (Payback period calculations) You are considering...Ch. 10 - (NPV with varying required rates of return)...Ch. 10 - Prob. 10SPCh. 10 - (NPV with varying required rates of return) Big...Ch. 10 - (NPV with different required rates of return)...Ch. 10 - (IRR with uneven cash flows) The Tiffin Barker...Ch. 10 - (NPV calculation) Calculate the NPV given the...Ch. 10 - (NPV calculation) Calculate the NPV given the...Ch. 10 - (MIRR calculation) Calculate the MIRR given the...Ch. 10 - (PI calculation) Calculate the PI given the...Ch. 10 - (Discounted payback period) Gios Restaurants is...Ch. 10 - (Discounted payback period) You are considering a...Ch. 10 - (Discounted payback period) Assuming an...Ch. 10 - (IRR) Jella Cosmetics is considering a project...Ch. 10 - (IRR) Your investment advisor has offered you an...Ch. 10 - (IRR, payback, and calculating a missing cash...Ch. 10 - (Discounted payback period) Sheinhardt Wig Company...Ch. 10 - (IRR of uneven cash-flow stream) Microwave Oven...Ch. 10 - (MIRR) Dunder Mifflin Paper Company is considering...Ch. 10 - (MIRR calculation) Arties Wrestling Stuff is...Ch. 10 - (Capital rationing) The Cowboy Hat Company of...Ch. 10 - Prob. 29SPCh. 10 - (Size-disparity problem) The D. Dorner Farms...Ch. 10 - (Replacement chains) Destination Hotels currently...Ch. 10 - Prob. 32SPCh. 10 - Prob. 33SPCh. 10 - Why is the capital-budgeting process so important?Ch. 10 - Prob. 2MCCh. 10 - What is the payback period on each project? If...Ch. 10 - What are the criticisms of the payback period?Ch. 10 - Prob. 5MCCh. 10 - Prob. 6MCCh. 10 - Prob. 7MCCh. 10 - Prob. 8MCCh. 10 - Prob. 9MCCh. 10 - Determine the IRR for each project. Should either...Ch. 10 - How does a change in the required rate of return...Ch. 10 - Caledonia is considering two investments with...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Please see attached. Two part questionarrow_forwardWhat information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's weighted average cost of capital (WACC) is 9%, the project's NPV (rounded to the nearest dollar) is: $355,048 $287,420 $405,769 $338,141 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not take the time value of money into account. The payback period is calculated using net income instead of cash flows. The payback period does not take the project's entire life into account.arrow_forwardComparative NPV analysis. Consider the following cash flows for two different projects: Cash flow 0 1 34 4 Project A -$10 million $ 4 million $ 5 million $ 6 million $ 4 million Project B -$25 million $ 8 million $10 million $12 million $10 millionarrow_forward
- please give Step by Step Solution otherwise i give you DISLIKE !arrow_forwardSuppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively. Time Project A Cash Flow Project B Cash Flow Use the payback decision rule to evaluate these projects, which one(s) should it be accepted or rejected? Multiple Choice 0 -35,000 -45,000 1 25,000 25,000 2 45,000 5,000 3 16,000 65,000arrow_forwardPlease see attached:arrow_forward
- Answer the following: 1 What is the payback period on each of the above projects? 2 Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? Why? 3 If you use a cutoff period of three years, which projects would you accept? Why?arrow_forward(Paybackperiod, NPV, PI, and IRR calculations) You are considering a project with an initial cash outlay of $80,000 and expected free cash flows of $26,000 at the end of each year for 6 years. The required rate of return for this project is 7 percent. a. What is the project's payback period? b. What is the project's NPV? c. What is the project's PI? d. What is the project's IRR?arrow_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
- In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for 2 years) and Project F (which lasts for 4 years): The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital. What is each project’s initial NPV without replication? What is each project’s equivalent annual annuity? Apply the replacement chain approach to determine the projects’ extended NPVs. Which project should be chosen? Assume that the cost to replicate Project T in 2 years will increase to $105,000 due to inflation. How should the analysis be handled now, and which project should be chosen?arrow_forwardThere are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment or $28.000 and is expected to generate the following cash flows: If the discount rate is 5% compute the NPV of each project and make a recommendation of the project to be chosen.arrow_forwarda. They payback period of project A is ___ years (round to two decimal places) The payback period of project B is ____ years. (round to two decimal places) According to the payback method, which project should the firm choose? b. The NPV of project A is $___ The NPV of project B is $___ c. The IRR of project A is ___ The IRR of project B is ___ d. Make a reccomendationarrow_forward
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