You are considering the following two mutually exclusive investments: Project Year 0 Year 1 Year 2 A -$80 0 $120 B -$40 $28 $28 Which project has the higher NPV if the required rate of return is 5%?
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You are considering the following two mutually exclusive investments:
|
Project |
Year 0 |
Year 1 |
Year 2 |
|---|---|---|---|
|
A |
-$80 |
0 |
$120 |
|
B |
-$40 |
$28 |
$28 |
Which project has the higher NPV if the required rate of return is 5%?
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- You have a choice between these 2 mutually exclusive investments, Projects A and B. If you require a 15% return, which investment should you choose? Project A Project B Year Cash Flow Cash Flow -100,000 I.125,000 1 20,000 74,000 40,000 46,000 3 81,000 40,000 O Project A, because it has a smaller initial investment. Project B, because it has a higher NPV. O Either one, because they have the same profitability indexes. O Project A, because it has the higher NPV. O Project B, because it pays back faster. 2.You are considering the following two mutually exclusive projects. The required rate of return is 11.25% for project A and 10.75% for project B. Which project should you accept? YEAR PROJECT A PROJECT B 0 -$48,000 -$126,900 1 $18,400 $69.700 2 $31,300 $80,900 3 $11,700 $0Q4: Consider the following two mutually exclusive projects, you require a 15 percent return on your investment: Year Cash Flow (A) Cash Flow (B) -18,000 10,000 -170,000 10,000 25,000 25,000 380,000 1 6,000 10,000 3 4 8,000 a) If you apply the payback criterion, which investment will you choose? Why? b) If you apply the discounted payback criterion, which investment will you choose? Why? c) If you apply the NPV criterion, which investment will you choose? Why? d) If you apply the IRR criterion, which investment will you choose? Why? e) If you apply the profitability index criterion, which investment will you choose? Why? f) Based on your answers in (a) through (e), which project will you finally choose? Why? g) What is the relationship between IRR and NPV? Are there any situations in which you might prefer one method over the other? Explain
- You are considering the following two mutually exclusive investments: Project Year 0 Year 1 Year 2 A -$80 0 $120 B -$40 $28 $28 Is the IRR of Project B larger or smaller than the IRR of Project A?Q4: Consider the following two mutually exclusive projects, you require a 15 percent return on your investment: Year Cash Flow (A) -170,000 10,000 25,000 Cash Flow (B) -18,000 10,000 6,000 10,000 8,000 1 3 25,000 4 380,000 a) If you apply the payback criterion, which investment will you choose? Why? b) If you apply the discounted payback criterion, which investment will you choose? Why? c) If you apply the NPV criterion, which investment will you choose? Why? d) If you apply the IRR criterion, which investment will you choose? Why? e) If you apply the profitability index criterion, which investment will you choose? Why? f) Based on your answers in (a) through (e), which project will you finally choose? Why? 8) What is the relationship between IRR and NPV? Are there any situations in which you might prefer one method over the other? ExplainConsider the following two mutually exclusive projects: YEAR CASH FLOW (A) CASH FLOW (B)0 -$300,000 -$39,0001 20,000 18,0002 70,000 12,0003 80,000 18,0004 400,000 19,000 Whichever project you choose, if any, you require a 15 percent return on your investment.i) If you apply the payback period (PBP) criterion, which investment will you choose? Why?ii) If you apply the net present value (NPV) criterion, which investment will you choose? Why?iii) If you apply the profitability index (PI) criterion, which investment will you choose? Why?iv) If you apply the internal rate of return (IRR) criterion, which investment will you choose?Why?v) Based on your answers in (i) through (iv), which project will you finally…
- Suppose your firm is evaluating four potential new investments. You calculate that these projects, W, X, Y, and Z,have the NPV and IRR figures given below:Project W: NPV = $7,000 IRR = 13%Project X: NPV = $-4,000 IRR = 15%Project Y: NPV = $5,000 IRR = 10%Project Z: NPV = $800 IRR = 18%a) Which project(s) should be accepted if they are independent? Clearly explain your reasoning.b) Which project(s) should be accepted if they are mutually exclusive? Clearly explain your reasoning.1) You are considering the following mutually exclusive projects: (15pts) 1 4. Project A -400 50 50 50 230 230 Project B -600 300 300 50 50 50 if the firm required return (WACC) is 10%: a. What is the NPV of project A? b. What is the IRR of project A? C. What is the NPV of project B? d. What is the IRR of project B? e. Which one you must select? a. b. C. d. e.Consider two mutually exclusive projects with the following expected cash flows and a required rate of return of 12% Cash Flows Year Project A Project B 0 -75,000 -100,000 1 60,000 60,000 2 30,000 50,000 3 30,000 60,000 (a) If you apply the discounted payback criterion, which investment will you choose? Why? (b) If you apply the NPV criterion, which investment will you choose? Why? (c) Based on your answers in (a) and (b), which project will you finally choose? Why ? (i.e clearly explain the strengths and the weaknesses of each method therefore the reason(s) for choosing the project based on the chosen method)
- You are considering the following two projects which are mutually exclusive. The required return on each project is 14%. Which project should you accept and what is the best reason for that decision? Year Project A Project B 0 $-46,000 $-46,000 1 $25,000 $11,000 2 $18,000 $19,000 3 $16,000 $32,000 a) Both Project A and B since they both have positive NPV b) Project A, because it has the higher profitability index c) Project A, because it has the higher net present value d) Project B, because it has the higher net present valueYou are considering the following two mutually exclusive projects. The crossover rate between these two projects is crossover rate. Year Project A Project B 0 1 23 $28,000 10,500 10,500 18,500 $28,000 18,610 8,500 10,630 percent and Project_ should be accepted if the required return is greater than theThe following information is available on two mutually exclusive projects. Project Year 0 Year 1 Year 2 Year 3 Year 4 A -$700 $200 $300 $400 $500 B -$700 $600 $300 $200 $100 If the required rate of return is 10%, which project should be selected using the net present value (NPV) method? Group of answer choices A B