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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Chapter 5, Problem 28QP
Summary Introduction
To determine: The IRR of the project.
Introduction:
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Filter Corp. has a project available with the following cash flows:
Year
Cash Flow
0
−$15,900
1
5,300
2
6,600
3
6,000
4
4,400
What is the project's IRR?
A project has the following cash flows:
Year
Cash Flows
0
$ 128,200
12
1
2
3
4
49,400
63,800
51,600
28,100
The required return is 8.7 percent. What is the profitability index for this project?
Multiple Choice
1.142
1.003
.803
1.038
Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 −$29,000 −$29000
1 14,400 4,300
2 12,300 9,800
3 9,200 15,200
4 5,100 16,800
a) What is the Internal Rate of Return (IRR) for each of these projects?
b) Using the IRR decision rule, which project should the company accept?
c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects?
d) Using the NPV decision rule, which project should the company accept?
e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?
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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- Company Z is considering a project that has the following cash flow data. What is this project's IRR? Year 0 1 2 3 4 Cash Flow -2,200 700 720 740 760 Group of answer choices 9.38% 12.18% 8.53% 10.36% 11.21%arrow_forwardYou are considering a project that has the following cash flow data. What is the project's payback? (Ch. 11) Year 0 1 2 3 Cash Flow -900 350 450 600 Group of answer choices 1.95 1.52 2.60 2.17 2.38arrow_forwardConsider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 15,456 5,225 8,223 13,013 8,705 0 1 234 -$ 276,363 26,400 51,000 57,000 402,000 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period b. What is the payback period for Project B? Payback period c. What is the discounted payback period for Project A? Discounted payback periodarrow_forward
- A project has the following cash flows: Year Cash Flow 0 $71,500 1 -51,000 28,800 2 a. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the NPV of this project if the required return is 5 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV of the project if the required return is O percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the NPV of the project if the required return is 23 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Internal rate of return b. NPV C. NPV d. NPV %arrow_forwardTuttle Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected. WACC: Year Cash flows a. $196.28 b. $395.09 c. $680.00 Od. $223.76 e. $473.68 14.00% 0 -$1,000 1 $420 2 $420 3 $420 4 $420arrow_forwarded Your company has a project available with the following cash flows: Year Cash Flow 0 -$80,900 12345 21,600 25,200 31,000 26,100 20,000 If the required return is 15 percent, should the project be accepted based on the IRR?arrow_forward
- You are considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 Cash Flow -900 350 450 550 Group of answer choices 2.40 1.53 1.96 2.18 2.62arrow_forwardA company is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected. Year 0 1 2 Cash flows -$1,050 $450 $470 $490 3.arrow_forwardYou've estimated the following cash flows (in $) for a project: A B 1 Year Cash flow 2 0 -3,000 3 1 900 4 2 1,300 5 3 1,606 The required return is 8.5%. 1. What is the IRR for the project? 2. What is the NPV of the project? 3. What should you do? Check all that apply: Accept the project based on its IRR Accept the project based on its NPV Reject the project based on its IRR Reject the project based on its NPVarrow_forward
- Living Colour Co. has a project available with the following cash flows: Year Cash Flow 0 −$35,550 1 7,880 2 9,450 3 13,350 4 15,490 5 10,160 If the required return for the project is 7.6 percent, what is the project's NPV?arrow_forwardBlinding Light Company has a project available with the following cash flows: Year Cash Flow -$ 32,990 072345 8,360 10,090 14,470 16,130 11,120 What is the project's IRR?arrow_forwardHart Corp. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital or negative, in both cases it will be rejected. Year 0 1 2 3 Cash flows −$1,000 $425 $425 $425 a. 12.55% b. 14.56% c. 15.29% d. 13.21% e. 13.87%arrow_forward
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