EBK 3N3-EBK: FINANCIAL ANALYSIS WITH MI
8th Edition
ISBN: 9780176914943
Author: Mayes
Publisher: VST
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Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $26,020, and the project will yield cash inflows of $8,000 per year for 5 years. The firm has a cost of capital of 8%.
a. Determine the net present value (NPV) for the project.
b. Determine the internal rate of return (IRR) for the project.
c. Would you recommend that the firm accept or reject the project?
The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,750 and has an expected life of 3 years. Annual net cash flows from each project begin 1 year after the initial investment is made and have the following probability distributions:
Project B
Project A
Cash Flows
Project A:
$
Yes
$
σ
$
Project A
Project B
$
b. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent.
x
X
*
$
CV
BPC has decided to evaluate the riskier project at an 11% rate and the less risky project at a 10% rate.
a. What is the expected value of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar.
Project A
Project B
X
Net cash flow $
What is the coefficient of variation (CV)? (Hint: OB-$4,757.63 and CVB=$0.67.) Do not round intermediate calculations. Round a values to the nearest cent and CV values to two decimal…
FB Company is considering investing in two construction projects, and he developed the following estimates of the cash flows. His required return is 10% and views these projects as equally risky.
Required:
a) Calculate the net present value (NPV) of each project, assess its acceptability, and indicate which project is best using NPV.
b) Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI.
c) If both the projects have recorded a positive NPV value and the projects are mutually exclusive, which projects would you recommend for FB Company to undertake? Why?
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- Rieger International is evaluating the feasibility of investing $103,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table attached. he firm has a cost of capital of 9%. a. Calculate the payback period for the proposed investment. b. Calculate the discounted payback period for the proposed investment. c. Calculate the net present value (NPV) for the proposed investment. d. Calculate the probability index for the proposed investment. e. Calculate the internal rate of return (IRR) for the proposed investment. f. Calculate the modified internal rate of return (MIRR) for the proposed investment. g. Evaluate the acceptability of the proposed investment using NPV, IRR, and MIRR.arrow_forwardBenson Designs has prepared the following estimates for a long-term project itis considering. The initial investment is $22,250, and the project is expected to yield after-tax cashinflows of $8,000 per year for 4 years. The firm has a 10% cost of capital.(a) Calculate the net present value (NPV) of the project.(b) Determine whether the internal rate of return (IRR) for the project is GREATER than 11%. Shownecessary calculations.(c) Would you recommend that the firm accept the project based on the NPV (answer in 10 words)?(d) Determine the payback period for the project.arrow_forwardMoses Manufacturing is attempting to select the best of three mutually exclusive projects, X, Y, and Z. Although all the projects have 5-year lives, they possess differing degrees of risk. Project X is in class V, the highest-risk class; project Y is in class II, the below-average-risk class; and project Z is in class III, the average-risk class. The basic cash flow data for each project and the risk classes and risk-adjusted discount rates (RADRs) used by the firm are shown in the following tables. Project X Project Y Project Z Initial investment (CF0) $179,000 $235,000 $312,000 Year (t ) Cash inflows (CFt) 1 $80,000 $56,000 $85,000 2 66,000 68,000 85,000 3 62,000 73,000 85,000 4 55,000 84,000 85,000 5 65,000 96,000 85,000 Risk Classes and RADRs Risk Class Description Risk adjusted…arrow_forward
- Moses Manufacturing is attempting to select the best of three mutually exclusive projects, X, Y, and Z. Although all the projects have 5-year lives, they possess differing degrees of risk. Project X is the most risky; Project Y is in the least risky; and Project Z is in between. The basic cash flow data for each project and the risk-adjusted discount rates (RADRs) used by the firm are shown in the following table Project X Project Y Project Z RADR 22.7% 13.3% 15.4% Initial investment ( CF0) $177,000 $238,000 $306,000 Year ( t ) Cash inflows (CFt) 1 $78,000 $55,000 $94,000 2 67,000 70,000 94,000 3 62,000 79,000 94,000 4 59,000 88,000 94,000 5 61,000 98,000 94,000 a) Find the risk-adjusted NPV for each project. a) the net present value for project X is $? b) Which project, if any, would you recommed that the firm udertake?arrow_forwardIvanhoe Manufacturing is evaluating two capital projects. The company's choice will be based on the profitability index. Project #1 has a present value of cash flows of $216,000 and a net initial investment of $194,400 while Project #2 has a present value of future cash flows of $885,600 and a net initial investment of $864,000. Click here to view the factor table. Using the present value tables, which project will Ivanhoe choose? (Round answers to 3 decimal places, e.g. 2.575.) Project #1 Project #2 Profitability Index Ivanhoe should choose since its profitability index is * than the profitability index ofarrow_forwardTowson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. Using the IRR formula in the textbook and the Appendix B PV FV Tables.pdf download, what is the present value factor for this investment? Given the answer above, what is the investment’s internal rate of return? and Use the appropriate EXCEL spreadsheet in the Chapter11 TVOM Examples.xlsx downloadto prove your answer above: Using the appropriate EXCEL spreadsheet, the answer = PLEASE NOTE: All PV Factors will be rounded to three decimal places (i.e. 1.234). Round your IRR answers, in percentage format, to one decimal place (i.e. 12.3%).arrow_forward
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