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 1QP
Calculating Payback Period and
| Year | Project A | Project B |
| 0 | –$20.000 | –$24,000 |
| 1 | 13,200 | 14,100 |
| 2 | 8,300 | 9,800 |
| 3 | 3,200 | 7,600 |
- a. Suppose the company's payback period cutoff is two years. Which of these two projects should be chosen?
- b. Suppose the company uses the NPV rule to rank these two projects. Which project should be chosen if the appropriate discount rate is 15 percent?
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Students have asked these similar questions
Calculating Payback Period and NPV Novell, Inc., has the following mutually exclusive projects.
Year Project A Project B
0 -$15,000 -$19,000
1 10,400 12,700
2 5,900 6, 100
3 2,100 5, 300
Suppose the company’s payback period cutoff is two years. Which of these two projects should be chosen?
Suppose the company uses the NPV rule to rank these two projects. Which project should be chosen if the appropriate discount rate is 15 percent?
a. 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 $___
c. The IRR of project A is ___
The IRR of project B is ___
d. Make a reccomendation
The Michner Corporation is trying to choose between the following two mutually exclusive design projects:
Year Cash Flow (I)
0
-$ 82,000
1
37,600
2
37,600
37,600
Cash Flow (II)
-$ 21,700
11, 200
11,200
11, 200
a-1. If the required return is 10 percent, what is the profitability index for each project?
Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.
a-2. If the required return is 10 percent and the company applies the profitability index decision rule, which project should the firm
accept?
b-1. If the required return is 10 percent, what is the NPV for each project?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
b-2. If the company applies the NPV decision rule, which project should it take?
a-1. Project I
Project II
a-2. Project acceptance
b-1. Project I
Project II
b-2. Project acceptance
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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