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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Textbook Question
Chapter 5, Problem 7PS
Capital rationing* Suppose you have the following investment opportunities, but only $90,000 available for investment. Which projects should you take?
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Suppose that you could invest in the following projects but have only $29,700 to invest. How would you make your decision and in
which projects would you invest?
Project Cost
A
$7,850
B
C
D
11,060
9,200
6,540
NPV
$3,200
6,460
4,150
3,090
You should invest in project(s)
19. Capital rationing (S5.4) Suppose you have the following investment opportunities, but only $90,000 available for
investment. Which projects should you take?
Project NPV ($) Investment ($)
1
2
3
4
5
6
5,000
5,000
10,000
15,000
15,000
3,000
10,000
5,000
90,000
60,000
75,000
15,000
Page 144
Suppose that you could invest in the following projects but have only $29,670 to invest. How would you make your decision and in
which projects would you invest?
Project
Cost
NPV
A
$8,260
$4,300
BCD
10,850
6,470
9,070
4,830
7,170
3,940
You should invest in project(s)
E
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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- I need help with H-1.arrow_forwardProfitability index. Given the discount rate and the future cash flow of each project listed in the following table, . use the Pl to determine which projects the company should accept. What is the Pl of project A? i Data Table (Round to two decimal places.) (Click on the following icon o in order to copy its contents into a spreadsheet.) Cash Flow Project A -%241,900,000 $150,000 $350,000 Project B Year 0 $2,300,000 $1,150,000 $950 000 $750,000 $550,000 Year 1 Year 2 Year 3 $550,000 Year 4 $750,000 $950,000 4% Year 5 $350.000 Discount rate 18% Print Donearrow_forwardSuppose that you could invest in the following projects but have only $24,480 to invest. Which projects would you choose? Project Cost NPV w $ 7,970 $ 3,000 x 10,990 7,530 y 8,500 4,280 z 6,750 3,890 You should invest in project(s)?arrow_forward
- Consider the following two projects: Cash flows Project A Project B C0�0 −$ 240 −$ 240 C1�1 100 123 C2�2 100 123 C3�3 100 123 C4�4 100 a. If the opportunity cost of capital is 8%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 8%. c. Which one would you choose if the cost of capital is 16%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h. If the opportunity cost of capital is 8%, what is the profitability index for each project? i. Is the project with the highest profitability index also the one with the highest NPV? j. Which measure should you use to choose between the projects?arrow_forward不 Data table You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): a. What are the IRRS of the two projects? b. If your discount rate is 4.6% what are the NPVS of the two projects? c. Why do IRR and NPV rank the two projects differently? a. What are the IRRS of the two projects? The IRR for project A is ☐ %. (Round to one decimal place.) (Click on the following icon in order to copy its contents into a spreadsheet.) Project A Year 0 - $49 Year 1 $24 B - $99 $18 Year 2 $21 $40 Print Done Year 3 Year 4 $19 $14 $50 $61arrow_forwardDon't use Aiarrow_forward
- (Table: Investment Projects) Use Table: Investment Projects. If the market interest rate declines from 15% to 11.5%, then the quantity of loanable funds demanded will increase by: Project IF G ІН || J Z L M a. $200. b. $1,000. c. $2,000. d. $2,200. Rate of Return on Investment 20% 18 16 14 12 10 18 6 Cost of Investment $500 300 1,000 200 2,000 1,500 1,200 800arrow_forwardWhich of the following projects would you feel safest in accepting? Assume the opportunity cost of capital is 12% for each project. ☐(a) “Project A” that has a small, but negative, NPV. ☐(b) “Project B” that has a positive NPV when discounted at 10%. ☐(c) “Project C” that has a cost of capital that exceeds its internal rate of return. ☐(d) “Project D” that has a zero NPV when discounted at 14%. darrow_forwardPlease see attached:arrow_forward
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