Question
In: Finance
You are evaluating two mutually exclusive projects. The cash flows for each are:
- You are evaluating two mutually exclusive projects. The cash flows for each are:
Project A Project B
Year 0 ($60,000) ($85,000)
Year 1 $20,000 $22,000
Year 2 $35,000 $25,000
Year 3 $20,000 $30,000
Year 4 $25,000 $25,000
Year 5 $15,000
Year 6 $10,000
Year 7 $10,000
Year 8 $10,000
Assume that, if needed, each project is repeatable with no change in cash flows. Your cost of capital is 13%.
- Using the replacement chain approach, which project would you chose to invest in?
- Using the equivalent annual annuity approach, which project would you chose to invest in?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
The manager of FIRN is evaluating two mutually exclusive projects. The costs and expected cash flows...
The manager of FIRN is evaluating two mutually exclusive
projects. The costs and expected cash flows are given in the
following table. The appropriate discount rate is 11.5% per
annum.
Years
Project X
Project Y
0
-$300,000
-$350,000
1
$150,000
$150,000
2
$150,000
$150,000
3
$250,000
$200,000
4
$80,000
$200,000
5
$80,000
$200,000
IRR
42.2%
39.3%
Calculate the crossover rate/incremental IRR, at which the NPV
profiles for Projects A and B intersect.
2.Which project should be accepted based on your...
The manager of FIRN is evaluating two mutually exclusive projects. The costs and expected cash flows...
The manager of FIRN is evaluating two mutually exclusive
projects. The costs and expected cash flows are given in the
following table. The appropriate discount rate is 11.5% per
annum.
Years
Project X
Project Y
0
-$300,000
-$350,000
1
$150,000
$150,000
2
$150,000
$150,000
3
$250,000
$200,000
4
$80,000
$200,000
5
$80,000
$200,000
IRR
42.2%
39.3%
1. Calculate the projects’ net present value (NPV). Identify
which project should be accepted under the rule of NPV. Explain
your
answer.
2. What...
Brian Cliff is evaluating two mutually exclusive projects (expected cash flows shown below). The...
Brian Cliff is evaluating two mutually exclusive projects
(expected cash flows shown below). The firm's cost of
capital is 12.25
percent.
Year
Project
A
Project B
0
(600)
(600)
1
200
400
2
310
260
3
400
100
NPV?
_____
_____
IRR?
_____
_____
Calculate the NPVs and IRRs for Projects A and B.
Project A's NPV is $107.02, and Project B's...
Consider the following two mutually exclusive projects and their Cash Flows ($)
Consider the following two mutually exclusive projects and their
Cash Flows ($)Project
C0 C1 C2
C3K
–$100
+$45 +$45 +$60 W
–$150
+$45 +$45 +$125Which statement is correct based on the above information about
Projects K and W?a. If the discount rate is 7.5%, accept project W because the
cross-over rate is 9%b. Accept project K, because at a 9% discount rate K and W have
the same net present value.c. If the discount rate is 9.5%, reject project K, because the...
Consider the cash flows from two mutually exclusive projects
Use the following information to answer the next three questions. Consider the cash flows from two mutually exclusive projects: Cash FlowYearProject AProject B0-$420,000-$420,0001$140,000$400,0002$230,000$110,0003$331,000$140,000The appropriate discount rate is 8.5%.Calculate the internal rate of return (IRR) for both projects, and determine which project should be accepted based on IRR.
Each of two mutually exclusive projects involves an investment of $124,000. Net cash flows for the...
Each of two mutually exclusive projects involves an investment
of $124,000. Net cash flows for the projects are as follows:
Year
Project A
Project B
1
60,000
57,000
2
62,000
64,000
3
40,000
47,000
A. Calculate each project's payback
period. (2 Points)
B. Compute the Net Present Value (NPV) of
each project when the firm's cost of capital is 10 percent. (2
Points)
C. Internal Rate of Return (IRR) -Your
choice; based on your answer to part (B). (2 Points)
D. Modified Internal Rate...
Two mutually exclusive projects have the following forecasted cash flows:
Two mutually exclusive projects have the following forecasted
cash flows:
Year A B
0 -20,000 -20,000
1 10,000 0
2 10,000 0
3 10,000 0
4 10,000 60,000
Compute the internal rate of return for each project.
Compute the NPV for each project if the required rate is
10%.
Which project should be accepted, and why?
Part A) Two projects are mutually exclusive if the cash flows of one are unaffected by...
Part A) Two projects are mutually exclusive if the cash flows of
one are unaffected by the acceptance of the other, but independent
if the cash flows of one can be adversely impacted by the
acceptance of the other.
True
False
Part B)
Which of the following statements is correct?
Capital rationing occurs when a company chooses to fund all
positive NPV projects.
A company typically sets no limit on the total amount of capital
expenditures that it will make...
2. Consider the following cash flows on two mutually exclusive projects: The cash flows of project...
2.
Consider the following cash flows on two mutually exclusive
projects: The cash flows of project A are expressed in real terms
while those of Popject B are expressed in nominal terms. The
appropriate nominal discount rate is 11 percent and the inflation
rate is 4 percent. Which project should you
choose?
Project A (real cash flow)
Project B (nominal cash flow)
Year
0
(67,000)
(74,000)
1
34,000
34,000
2
37,000
45,000
3
...
(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive...
(Mutually exclusive projects and NPV) You have been assigned
the task of evaluating two mutually exclusive projects with the
following projected cash flows: If the appropriate discount rate
on these projects is 11 percent, which would be chosen and why?
What is the NPV of project A? $ nothing (Round to the nearest
cent.) What is the NPV of project B? $ (Round to the nearest
cent.) Which project would be chosen and why? (Select the best
choice.) A....
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