MyLab Finance with Pearson eText -- Access Card -- for Principles of Managerial Finance
15th Edition
ISBN: 9780134479903
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 12, Problem 12.5WUE
Powerswitch Electric is faced with a capital budget of $150,000 for the coming year. It is considering six investment projects and has a cost of capital of 7%. The six projects along with their initial investments and their IRRs are listed in the following table. Using the data given, prepare an investment opportunities schedule (IOS). Which projects does the IOS suggest should be funded? Does this group of projects maximize
| Project | Initial investment | |
| 1 | –$75,000 | 8% |
| 2 | –40,000 | 10 |
| 3 | –35,000 | 7 |
| 4 | –50,000 | 11 |
| 5 | –45,000 | 9 |
| 6 | –20,000 | 6 |
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Jay is currently evaluating a project with the following estimated investment requirements ($ millions) by year (starting in year 0):
investment year
investment
0
11.2
1
16.6
2
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3
11.3
4
18
The estimated revenues ($ millions) from the project, expected to begin at time 3, are given in the table below:
\
investment year
reveune
0
13.3
1
14
2
8.4
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14.7
4
9.9
5
8.4
6
13.4
To account for the different risk characteristics throughout the project's life, Jay has determined that a hurdle rate of 24% should be used beginning at time 0, while 30% should be used beginning in period 5.
Determine the NPV for the project.
NPV =
Perform a financial analysis of a project assuming that the projected costs and benefits for this project are spread over four years as follows:
Estimated costs are $200,000 in Year 1 and $30,000 each year in Years 2,3 and 4.
Estimated benefits are $0 in year 1 and $100,000 each year in Years 2,3 and 4. Use a 9 percentage, discount rate, round the discount factors to two decimal places. Create a table of financial template on the paper to calculate and clearly display the NPV, ROI and year in which payback occurs with the help of a graph. In addition, write a paragraph explaining whether you would recommend investing in this project, based on your financial analysis.
Five engineering projects are being considered for the upcoming capital budget period. The interrelationships among the projects and the estimated net cash flows of the projects are summarized in the following table: Projects B1 and B2 are mutually exclusive. Projects C1 and C2 are mutually exclusive and dependent on the acceptance of B2. Finally, project D is dependent on the acceptance of C1. Using the PW method, and assuming that MARR = 10% per year, determine which combination (portfolio) of projects is best if the availability of capital is limited to $48,000.
Chapter 12 Solutions
MyLab Finance with Pearson eText -- Access Card -- for Principles of Managerial Finance
Ch. 12.1 - Are most mutually exclusive capital budgeting...Ch. 12.2 - Prob. 12.2RQCh. 12.2 - Describe how each of the following behavioral...Ch. 12.3 - Briefly explain how the following items affect the...Ch. 12.4 - Describe the basic procedures involved in using...Ch. 12.4 - Explain why a firm whose stock is actively traded...Ch. 12.4 - Prob. 12.8RQCh. 12.5 - Explain why a mere comparison of the NPVs of...Ch. 12.5 - What are real options? What are some major types...Ch. 12.5 - What is the difference between the strategic NPV...
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