Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 16QP
Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 10 percent.
Year | AZM Mini-SUV | AZF Full-SUV |
0 | -$495,000 | -$960.000 |
1 | 352,000 | 385.000 |
2 | 198,000 | 464.000 |
3 | 165,000 | 319.000 |
- a. Based on the payback period, which project should be accepted?
- b. Based on the
NPV , which project should be accepted? - c. Based on the JRR, which project should be accepted?
- d. Based on this analysis, is incremental
IRR analysis necessary? If yes, please conduct the analysis.
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16. Comparing Investment Criteria Consider the following cash flows of two mutually
exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 10
percent.
Year
AZM Mini-SUV
AZF Full-SUV
0123
-$575,000
-$980,000
373,000
395,000
219,000
477,000
185,000
339,000
a. Based on the payback period, which project should be accepted?
b. Based on the NPV, which project should be accepted?
c. Based on the IRR, which project should be accepted?
d. Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct
the analysis.
Consider the following two mutually exclusive projects:
Year
Cash Flow (X)
Cash Flow (Y)
0
1
2
3
-$20,000
8,850
9,100
8,800
2
Instruction:
Sketch the NPV profiles for X and Y over a range of discount
rates from 0% to 25%. What is the crossover rate for these two
projects (when both projects have the same NPV)? Show your
steps.
-$20,000
10,100
7,800
8,700
A▾ B I
= 18
1
Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars.
Assume the discount rate for both projects is 11 percent.
AZM
Year Mini-SUV
0
1
2
3
495,000
329,000
198,000
159,000
AZF
Full-SUV
AZM Mini-SUV
AZF Full-SUV
845,000
359,000
438,000
299,000
a. What is the payback period for each project? (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
years
years
Chapter 5 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - International Investment Projects In March 2014,...Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Calculating Payback Period and NPV Maxwell...Ch. 5 - Calculating Payback An investment project provides...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Prob. 5QPCh. 5 - Calculating IRR Compute the internal rate of...Ch. 5 - Calculating Profitability Index Bill plans to open...Ch. 5 - Calculating Profitability Index Suppose the...Ch. 5 - Cash Flow Intuition A project has an initial cost...Ch. 5 - Prob. 10QPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Problems with Profitability Index The Coris...Ch. 5 - Prob. 13QPCh. 5 - Comparing Investment Criteria Wii Brothers, a game...Ch. 5 - Profitability Index versus NPV Hanmi Group, a...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Comparing Investment Criteria The treasurer of...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QPCh. 5 - NPV and Multiple IRRs You are evaluating a project...Ch. 5 - Payback and NPV An investment under consideration...Ch. 5 - Multiple IRRs This problem is useful for testing...Ch. 5 - NPV Valuation The Yurdone Corporation wants to set...Ch. 5 - Calculating IRR The Utah Mining Corporation is set...Ch. 5 - Prob. 25QPCh. 5 - Calculating IRR Consider two streams of cash...Ch. 5 - Calculating Incremental Cash Flows Darin Clay, the...Ch. 5 - Prob. 28QPCh. 5 - Prob. 1MCCh. 5 - Seth Bullock, the owner of Bullock Gold Mining, is...
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