A company is considering two projects. Project I Project II Initial investment $120,000 $120,000 Cash inflow Year 1 $40,000 $20,000 Cash inflow Year 2 $40,000 $20,000 Cash inflow Year 3 $40,000 $32,000 Cash inflow Year 4 $40,000 $48,000 Cash inflow Year 5 $40,000 $50,000 What is the payback period for Project I? a.5 years b.3.5 years c.2.5 years d.1 year e.3 years

A company is considering two projects. Project I Project II Initial investment $120,000 $120,000 Cash inflow Year 1 $40,000 $20,000 Cash inflow Year 2 $40,000 $20,000 Cash inflow Year 3 $40,000 $32,000 Cash inflow Year 4 $40,000 $48,000 Cash inflow Year 5 $40,000 $50,000 What is the payback period for Project I? a.5 years b.3.5 years c.2.5 years d.1 year e.3 years

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

See similar textbooks

Similar questions

Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?
A company needs to decide if it will move forward with two new products that it is evaluating. The two initiatives have the following cash flow projections: Project A Year 0 1 2 3 4 Cash Flow -800,000 220,000 265,000 292,000 317,000 Project B Year 0 1 2 3…
Your boss hands you the following information for a pair of mutually exclusive projects and asks for your recommendation. What should you do? Cash Flows Project A B Cost of Capital 10% 10% IRR 38% 22% Year 0 $10,000 $10,000 The NPV of project A is $. and the NPV of project B is $ (Round to two decimal places as needed.) Year 1 58000 $2600 Year 2 $5000 $6000 Using the NPV rule, project Year 3 $4000 $7000 should be selected.
A company is considering two projects. Project I Project II Initial investment $200,000 $200,000 Cash inflow Year 1 50,000 60,000 Cash inflow Year 2 50,000 60,000 Cash inflow Year 3 50,000 80,000 Cash inflow Year 4 50,000 10,000 Cash inflow Year 5 50,000 50000 What is the payback period for Project II?
An interior design studio is trying to choose between the following two mutually exclusive design projects: Year 0 1 2 3 Cash Flow Cash Flow (0) -$64,000 31,000 31,000 31,000 a-1 If the required return is 10 percent, what is the profitability index for both projects? (Round your answers to 3 decimal places. (e.g., 32.161)) Project I Project II -$18,000 9,700 9,700 9,700 Profitability Index a-2 If the company applies the profitability index decision rule, which project should the firm accept? O Project I O Project II Project I Project II b-1 What is the NPV for both projects? (Round your answers to 2 decimal places. (e.g., 32.16)) O Project I Project II NPV b-2lf the company applies the NPV decision rule, which project should it take?
Coffer Company is analyzing two potential investments. Project X Cost of machine Net cash flow: Year 1 Year 2 $ 85,470 Project Y $ 65,000 33,000 33,000 3,000 30,000 Year 3 Year 4 33,000 0 • 30,000 25,000 If the company is using the payback period méthod, and it requires a payback period of three years or less, which project(s) should be selected? Multiple Choice Project Y. Project X. Both X and Y are acceptable projects. Neither X nor Y is an acceptable project.
Your division is considering two projects with the following cash flows (in millions): Year 1 3 $5 $17 $10 $6 5% Project A -$25 Project B -$20 a. What are the projects' NPVs assuming that the WACC is 5%, 10%, and 15%? WACC NPV-A NPV-B WACC 10% 0 15% 2 NPV-A $10 $9 NPV-B b. What are the projects' IRRs? c. If the WACC was 10%, ad A and B were mutually exclusive projects, which project would you choose?
The graph below represents the IRR of one of the project your company is considering. $400,000 NPV Profile $300,000 $200,000 $100,000 $0 10% 20% 30% 40% 50% 60% 70% 80% 100% -$100,000 Ceesl of Gesppilial -$200,000 -$300,000 -$400,000 1. Explain why this project has two IRRS and not only one? 2. How can you make investing decision based on the above graph? Explain in details your answer. 3. If the cost of capital is 15%, are you going to accept investing in this project? Why. 4. What will be your decision if the cost of capital is 90%?
Porter Company is analyzing two potential Investments. Project X $ 75,900 Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Multiple Choice O If the company is using the payback period method, and it requires a payback of three years or ess, which project(s) should be selected? Project Y. 26,000 26,000 26,000 0 Project X. Project Y $ 64,000 Both X and Y are acceptable projects. 4,400 28,000 28,000 20,000 Neither X nor Y is an acceptable project. Project Y because it has a lower Initial Investment.
Consider the following list of projects: Project Investment NPV A $135,000 $13,500 200,000 30,000 C 150,000 25,000 D 175,000 20,000 Assuming that your capital is constrained, which project should you invest in last? O Project A O Project B O Project C O Project D
Consider the following two mutually exclusive projects: Year Cash Flow(A) -$ 63,000 39,000 33,000 22,500 14,600 Cash Flow(B) -$ 63,000 25,700 29,700 35,000 24,700 4 1-What is the IRR for each project? Project A Project B % % 2.IF you apply the IRR decision rule, which project should ti 3.Assume the required return is 14 percent. What is the NP Project A Project B 0123

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

SEE MORE TEXTBOOKS

GET THE APP

About FAQ Academic Integrity Sitemap Document Sitemap

Contact Bartleby Contact Research (Essays)High School Textbooks Literature Guides Concept Explainers by Subject Essay Help Mobile App

GET THE APP

Privacy

Your CA Privacy Rights

Your NV Privacy Rights

About Ads

Manage My Data

bartleby, a Learneo, Inc. business

	Project I	Project II
Initial investment	$120,000	$120,000
Cash inflow Year 1	$40,000	$20,000
Cash inflow Year 2	$40,000	$20,000
Cash inflow Year 3	$40,000	$32,000
Cash inflow Year 4	$40,000	$48,000
Cash inflow Year 5	$40,000	$50,000