EBK 3N3-EBK: FINANCIAL ANALYSIS WITH MI
8th Edition
ISBN: 9780176914943
Author: Mayes
Publisher: VST
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Consider the two mutually exclusive investment projects given in the table below for which
MARR = 12%. On the basis of the IRR criterion, which project would be selected under an infinite
planning horizon with project repeatability likely?
Click the icon to view the cash flows for the investment projects.
The rate of return on the incremental investment is 42.3 %. (Round to one decimal place.)
Which project would be selected on the basis of the IRR criterion? Choose the correct answer below.
Project B
Project A
More Info
(Click on the following icon in order to copy its contents into a spreadsheet.)
Net Cash Flow
Project A
- $4,000
n
0
1
2
3
IRR
2,500
4,000
4,000
62.18%
Project B
- $10,500
9,500
9,500
50.57%
X
You must analyze two projects, X and Y. Each project costs$10,000, and the firm’s WACC is 12%. The expected cash flows are as follows:a. Calculate each project’s NPV, IRR, MIRR, payback, and discounted payback.b. Which project(s) should be accepted if they are independent?c. Which project(s) should be accepted if they are mutually exclusive?d. How might a change in the WACC produce a conflict between the NPV and IRR rankingsof the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot theNPV profiles. The crossover rate is 6.21875%.)e. Why does the conflict exist?
You are choosing between two projects. The cash flows for the projects are given in the attached table ($miilion)
.
a. What are the IRRs of the two projects? (A &B)
b. If your discount rate is 4.9%,what are theNPVs of the two projects? (A & B)
c. Why do IRR and NPV rank the two projects differently?
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- Consider the two mutually exclusive projects described in the table below. the question requires a step by step excel solutionFor any positive value of the MARR, divide the possible MARR values into ranges with different decisions;describe and discuss what decision would be made in each range and why. You will need to calculate the crossover rate to determine the precise MARR where the decision changes. Include an NPV profile table and chart to illustrate your answer.Year Cash Flow Project A Cash Flow Project B0 -450,000 -700,0001 200,000 200,0002 150,000 200,0003 100,000 200,0004 100,000 200,0005 75,000 200,000arrow_forwardYou are evaluating five investment projects. You have already calculated the rate of return for each alternative investment and incremental rate of return for the two alternatives. In calculating the incremental rate of return, a lower-cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. If all investment alternatives are mutually exclusive and the MARR is 12%,which alternative should be chosen?(a) D(b)E(c) B(d) Do nothingarrow_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_forward
- Suppose your firm is evaluating four potential new investments. You calculate that these projects, W, X, Y, and Z,have the NPV and IRR figures given below:Project W: NPV = $7,000 IRR = 13%Project X: NPV = $-4,000 IRR = 15%Project Y: NPV = $5,000 IRR = 10%Project Z: NPV = $800 IRR = 18%a) Which project(s) should be accepted if they are independent? Clearly explain your reasoning.b) Which project(s) should be accepted if they are mutually exclusive? Clearly explain your reasoning.arrow_forwardYou are choosing between two projects. The cash flows for the projects are given in the following table ($ million): a. What are the IRRs of the two projects? b. If your discount rate is 4.6%, what are the NPVs of the two projects? c. Why do IRR and NPV rank the two projects differently?arrow_forwardYou are choosing between two projects. The cash flows for the projects are given in the following table ($ million): - a. What are the IRRs of the two projects? b. If your discount rate is 5.1%, what are the NPVs of the two projects? c. Why do IRR and NPV rank the two projects differently? a. What are the IRRs of the two projects? The IRR for project A is%. (Round to one decimal place.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year 0 Year 1 Year 2 A - $49 $23 $19 B - $101 $19 $40 Print Done Year 3 $18 $49 Year 4 $14 $62 Xarrow_forward
- You are evaluating five investment projects. You have already calculated the rate of return for each alternative investment and incremental rate of return for the two alternatives. In calculating the incremental rate of return, a lower cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. If all investment alternatives are mutually exclusive and the MARR is 12%,which alternative should be chosen?(a) D(b) E(c) B(d) Do nothingarrow_forwardYou are considering the following two mutually exclusive projects. The crossover rate between these two projects is ___ percent and Project ___ should be accepted if the required return is greater than the crossover rate. Year : Project A : Project B 0 : −$ 29,000 : −$ 29,000 1 : 11,000 : 19,120 2 : 11,000 : 9,000 3 : 19,000 : 11,140arrow_forwardYou are choosing between two projects. The cash flows for the projects are given in the following table ( $ million ) : What are the IRRs of the two projects? If your discount rate is 5.4 % , what are the NPVs of the two projects? Why do IRR and NPV rank the two projects differently?arrow_forward
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