Question

In: Finance

A firm is considering two projects, A and B. Each project will last for 4 years....

A firm is considering two projects, A and B. Each project will last for 4 years. The projects are INDEPENDENT. The projected cash flows for each project are shown below:

Year 0 1 2 3 4

Project A -20.00 8.00 8.00 6.00 4.00

Project B -30.00 10.00 10.00 11.00 9.00

The cost of capital for the firm is 10.00%. What is the NPV for project A at the cost of capital?

Answer Format: Currency: Round to: 2 decimal places.

Solutions

Expert Solution

Present Value
Year Project A Project B DF at 10% Project A Project B
A B C D = A x C E = B x C
0 -20 -30              1.0000 $           (20.00) $           (30.00)
1 8 10              0.9091 $               7.27 $               9.09
2 8 10              0.8264 $               6.61 $               8.26
3 6 11              0.7513 $               4.51 $               8.26
4 4 9              0.6830 $               2.73 $               6.15
NPV = Sum total $                      1.12 $                      1.77
So NPV for project A is $1.12

jeff jeffy answered 7 months ago
Next > < Previous

Related Solutions

A firm is considering two projects both with a life of five years. Project LUCKY costs...
A firm is considering two projects both with a life of five years. Project LUCKY costs $22,000 and after tax cash flows will be $6,000 annually. Project COLT will cost $24,000 and return after tax cash flows of $5,000; $6,000; $7,000; $8,000 and $9,000. The corporation's WACC is 10%
What is the EAC of two projects: project A, which costs $150 and is expected to last two years, and project B, which costs $190 and is expected to last three years?
  Q2. What is the EAC of two projects: project A, which costs $150 and is expected to last two years, and project B, which costs $190 and is expected to last three years? The cost of capital is 12%. (1 mark) Answer: Q3. A company pays annual dividends of $10.40 with no possibility of it changing in the next several years. If the firm’s stock is currently selling at $80, what is the required rate of return? (1 mark)...
Your firm is considering two projects that are mutually exclusive. Each project will require an initial...
Your firm is considering two projects that are mutually exclusive. Each project will require an initial outlay of $200,000. The forecast yearly cash flows are shown below. Time Project A Project B 0 -200,000 -200,000 1 -25,000 120,000 2 80,000 80,000 3 100,000 40,000 4 140,000 25,000 a) Calculate the payback period (undiscounted) of each project. Include fractional periods (e.g., x.xx years) in your response, if applicable. b) Calculate the IRR of each project. c) Calculate the Modified IRR (MIRR)...
A firm is considering two mutually exclusive projects, A and B. The projects are different in...
A firm is considering two mutually exclusive projects, A and B. The projects are different in that they have different returns depending on general economic conditions. The firm forecasts that return on the market, and the returns on each project, along with their associated probabilities will be given by the following table. You can assume a 5% risk free rate and a 6% market risk premium. Assume the CAPM holds. Compare the expected returns to the cost of capital for...
A firm is considering a new project that costs $10,000 that will last 5 years and...
A firm is considering a new project that costs $10,000 that will last 5 years and will have no salvage value. The project would save $3,000 per year in salaries and would be financed with a loan that will accrue interest costs of 15% per year. The firm’s tax rate is 40%, its cost of capital is 20%, and the firm will use the straight-line method of depreciation. What is the NPV of the project? Should the firm invest in...
Dow Chemical is considering a project that is expected to last 4 years with the following...
Dow Chemical is considering a project that is expected to last 4 years with the following details: Year 1 revenues of $560,000 increasing at 5% per year thereafter. Costs for year 1 are $200,000 and are expected to increase at 6% per year thereafter. The project will require new equipment valued at $400,000. This equipment will be depreciated to zero using the straight-line depreciation method over the 4-year life. Working capital at the firm will have to rise to $50,000...
A firm is considering two projects, A and B, with the following probability distributions for profit....
A firm is considering two projects, A and B, with the following probability distributions for profit. Profit ($1,000s). Project A Probability (%)   Project B Probability (%)    $20 10 10 40 15 15 60 50 25 80 15 40 100 10 10 a. Compute the expected value of project A (in $1,000s). b. Compute the variance of project A (in $1000s). c. Compute the expected value of project B (in $1000s). d. Which project would be selected if an analysis...
The Financial Manager of Alantis Company is considering two projects (project A and project B), which...
The Financial Manager of Alantis Company is considering two projects (project A and project B), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project B (in $) 0 -100 -100 1     10     70 2     60     50 3     80     20 Alantis Company’s cost of capital is 10 percent. Please Calculate the payback, NPV, IRR, and MIRR for both projects. (Show step by step work)
The Financial Manager of Alantis Company is considering two projects (project A and project B), which...
The Financial Manager of Alantis Company is considering two projects (project A and project B), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project B (in $) 0 -100 -100 1     10     70 2     60     50 3     80     20 Alantis Company’s cost of capital is 10 percent. Please Calculate the payback, NPV, IRR, and MIRR for both projects. (Show step by step work)
Your firm is considering the following mutually exclusive projects: Year Project A Project B 0 -$3,300,000...
Your firm is considering the following mutually exclusive projects: Year Project A Project B 0 -$3,300,000 -$3,300,000 1 1,940,000 866,000 2 1,350,000 1,250,000 3 850,000 2,325,000 The firm uses a discount rate of 12.628%. At that discount rate we find that A-Project A is clearly preferred B-Project B is clearly preferred C-the projects have roughly the same NPV's Given that finding, the firm should select ___________because it's NPV is the least sensitive to change A-Project A B-Project B
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT