Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 5, Problem 3PS
a)
Summary Introduction
To determine: The
Net present value (NPV) is the difference between the present value of
b)
Summary Introduction
To determine: The
Internal rate of return (IRR) is the discount rate at which the present value of cash inflow will be equal to the present value of cash outflow.
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Calculate for each project:
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Which project should be accepted and why?
PLEASE SEE ATTACHED PHOTO TO ANSWER THE ABOVE QUESTIONS
If the net present value of A is +$60 and of B is +$30, then what is the net present value of the combined project?
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discount factor, what does this imply about that project's IRR?
Chapter 5 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - (IRR) Check the IRRs for project F in Section 5-3.Ch. 5 - (IRR) What is the IRR of a project with the...Ch. 5 - (XIRR) What is the IRR of a project with the...Ch. 5 - Payback a. What is the payback period on each of...Ch. 5 - IRR Write down the equation defining a projects...Ch. 5 - Prob. 3PSCh. 5 - IRR rule You have the chance to participate in a...Ch. 5 - IRR rule Consider a project with the following...Ch. 5 - IRR rule Consider projects Alpha and Beta: The...Ch. 5 - Capital rationing Suppose you have the following...
Ch. 5 - Payback Consider the following projects: a. If the...Ch. 5 - Prob. 9PSCh. 5 - IRR Calculate the IRR (or IRRs) for the following...Ch. 5 - IRR rule Consider the following two mutually...Ch. 5 - IRR rule Mr. Cyrus Clops, the president of Giant...Ch. 5 - Prob. 13PSCh. 5 - Profitability index Look again at projects D and E...Ch. 5 - Prob. 15PSCh. 5 - Prob. 16PS
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Similar questions
- 3) could you use the Figure below that shows the net present value profile of two projects Y and W to answer the following questions: What is the internal rate of return on project Y? Determine the “approximate” discount rate at which you would be indifferent between the two projects Find the “approximate” net present value of project W when the discount rate is 4%.arrow_forwardThe NPV is the same as the profit of a project expressed in present dollars. Do you agree? Explain.arrow_forwardWhen comparing two projects with different lives, why do you compute an annuity with an equivalent present value (PV) to the net present value (NPV)? A. so that the projects can be compared on their cost or value created per year B. to reduce the danger that changes in the estimate of the discount rate will lead to choosing the project with a shorter time frame C. so that you can see which project has the greatest net present value (NPV) D. to avoid complications arising from alternating cash inflows and outflows O E. to ensure that cash flows from the project with a longer life that occur after the project with the shorter life has ended are consideredarrow_forward
- In calculating IRR for a project, you determine that you must find i* that satisfies (A/P, i, 6) = 0.200. The Compound Interest Tables show that (A/P, 5%, 6) = 0.19702 and (A/P, 6%, 6) = 0.20336. Using Linear Interpolation, what is i*?arrow_forwardProject A has a net present value of zero when the discount factor of 20% is used. How much return is the project earning?arrow_forwarda. 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 reccomendationarrow_forward
- a. Calculate the projects’ NPVs, IRRs, MIRRs, regular paybacks, and discounted paybacks.b. If the two projects are independent, which project(s) should be chosen?c. If the two projects are mutually exclusive and the WACC is 10%, which project(s)should be chosen?d. Plot NPV profiles for the two projects. Identify the projects’ IRRs on the graph.e. If the WACC was 5%, would this change your recommendation if the projects weremutually exclusive? If the WACC was 15%, would this change your recommendation?Explain your answers.f. The crossover rate is 13.5252%. Explain what this rate is and how it affects the choicebetween mutually exclusive projects.g. Is it possible for conflicts to exist between the NPV and the IRR when independentprojects are being evaluated? Explain your answer.h. Now look at the regular and discounted paybacks. Which project looks better whenjudged by the paybacks?i. If the payback was the only method a firm used to accept or reject projects, what paybackshould it…arrow_forwardProfitability index. Given the discount rate and the future cash flow of each project listed in the following table, , use the PI to determine which projects the company should accept. ..... What is the Pl of project A? (Round to two decimal places.)arrow_forwardConsider two project alternatives, project I and project II, with their payoffs and their associated probabilities outlined in the following table: Project I Project II Payoff 10 15 20 Probability 0.1 0.8 0.1 Payoff 1. Compute RRI for each project; 2. Would you select project I or project II? Why. 5 10 14 Probability 0.2 0.3 0.5arrow_forward
- Project Analysis. Assume that you are evaluating the following three mutually exclusive projects: A. Complete the following analyses. (For the last two lines, Terminal Value, please write in the dollar amount of the terminal value.) B. Compare and explain the conflicting rankings of the NPVs and TRRs versus the IRRs. C. Using different discount rates, is it possible to get different rankings within the NPV calculation? Why or why not? D. If 10 percent is the required return, which project is preferred? E. Which is the fairer representation of these two projects, TRR or IRR? Why?arrow_forwardc. If the required return is 10 percent, what is the NPV for Project A? NPV d. If the required return is 10 percent, what is the NPV for Project B? NPVarrow_forwarda. What are the project’s annual net cash inflows? b. What is the present value of the project’s annual net cash inflows? (Round your final answer to the nearest whole dollar amount.) c. What is the project’s net present value? (Round final answer to the nearest whole dollar amount.) d. What is the profitability index for this project? (Round your answer to 2 decimal places.) e. What is the project’s internal rate of return? (Round your answer to nearest whole percent.)arrow_forward
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