Question

In: Finance

You are considering the following two projects and can take only one. Your cost of capital...

You are considering the following two projects and can take only one. Your cost of capital is

11.1%.

The cash flows for the two projects are as follows​ ($ million):

Project

Year 0

Year 1

Year 2

Year 3

Year 4

A

−$100

$27

$32

$39

$52

B

−$100

$52

$39

$32

$22

a. What is the IRR of each​ project?

b. What is the NPV of each project at your cost of​ capital?

c. At what cost of capital are you indifferent between the two​ projects?

d. What should you​ do?

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

You are considering the following two projects and can take only one. Your cost of capital...
You are considering the following two projects and can take only one. Your cost of capital is 11.9%. The cash flows for the two projects are as follows​ ($ million): Project   Year 0   Year 1   Year 2   Year 3   Year 4   A -$103 28 34 44 53 B -$103 53 44 34 24 What is the IRR of each project? Which project should you choose? Select one: a. IRR of Project A = 17.7%, IRR of Project B = 21.7%....
You are considering the following two projects and can only take one. Your cost of capital...
You are considering the following two projects and can only take one. Your cost of capital is 11.4 %. The cash flows for the two projects are as follows​ ($ million): Project Year 0 Year 1 Year 2 Year 3 Year 4 A −$102 $27 $31 $39 $49 B −$102 $49 $39 $31 $20 a. What is the IRR of each​ project? b. What is the NPV of each project at your cost of​ capital? c. At what cost of...
You are considering the following two projects and can only take one. Your cost of capital...
You are considering the following two projects and can only take one. Your cost of capital is 11.2 %11.2%. The cash flows for the two projects are as follows​ ($ million): Project Year 0 Year 1 Year 2 Year 3 Year 4 A −$100 $27 $30 $42 $52 B $100 $ 52 $ 42 $ 30 $21 a. What is the IRR of each​ project? b. What is the NPV of each project at your cost of​ capital? c. At...
Your company is considering investing in one of two mutually exclusive projects. The cost of capital...
Your company is considering investing in one of two mutually exclusive projects. The cost of capital is 11%. The first project Has $25,000 annual cash inflows, a 10-year life, and will cost $120,000 at time zero. The second project has a 7-year life, Annual cash inflows of $20,000 per year, and a cost of $75,000 at time zero. Which project has the highest NPV. Assuming that these projects will most likely be repeated indefinitely into the future, which project would...
Your company is considering investing in one of two mutually exclusive projects. The cost of capital...
Your company is considering investing in one of two mutually exclusive projects. The cost of capital is 11%. The first project Has $25,000 annual cash inflows, a 10-year life, and will cost $120,000 at time zero. The second project has a 7-year life, Annual cash inflows of $20,000 per year, and a cost of $75,000 at time zero. Which project has the highest NPV. Assuming that these projects will most likely be repeated indefinitely into the future, which project would...
As CFO of Gaga Inc., you are considering two projects, each with a cost of capital...
As CFO of Gaga Inc., you are considering two projects, each with a cost of capital of 11%, with the following cash flows: t =               0   1     2     3      4     Project S -6000 4000 3000 2000 1000 Project L -3500 2000 1000 2000 2000 What is the NPV and IRR of Project S? (2 pts)   What is the NPV and IRR of Project L? (2 pts) Which project(s) should you choose if they are mutually exclusive and there is...
Your division is considering two projects. Its WACC is 10% (weighted average cost of capital, that...
Your division is considering two projects. Its WACC is 10% (weighted average cost of capital, that represent a firm’s cost of capital in which each category of capital is proportionately weighted), the projects’ after-tax cash flows (in millions of dollars) would be as follows: Project A 0 = - $30 1 = - $ 5 2 = $ 10 3 = $ 15 4 = 20 Project B 0 = - $ 30 1 = $ 20 2 = $10...
Diamond City is considering two mutually exclusive investment projects. The cost of capital for these projects...
Diamond City is considering two mutually exclusive investment projects. The cost of capital for these projects is r. The projects’ expected net cash flows are as follows: Year Project A Project B 0 -42,000 -42,000 1 24,000 16,000 2 20,000 18,000 3 16,000 22,000 4 12,000 26,000 a. If r = 10%, which project should be selected under the NPV method? b. If r = 20%, which project should be selected under the NPV method? c. Calculate each project’s PI...
Diamond City is considering two mutually exclusive investment projects. The cost of capital for these projects...
Diamond City is considering two mutually exclusive investment projects. The cost of capital for these projects is r. The projects’ expected net cash flows are as follows: Year Project A Project B 0 -42,000 -42,000 1 24,000 16,000 2 20,000 18,000 3 16,000 22,000 4 12,000 26,000 a. Calculate each project’s payback (PB) period if r = 10% (up to 2 decimal places). Which project should be accepted? b. Calculate each project’s discounted payback (DPB) period if r = 10%...
You have two potential investment projects, Project A and Project B. You can take one, but...
You have two potential investment projects, Project A and Project B. You can take one, but not both. The annual cash flows for the two projects are: Year 0 1 2 3 Project A Cash Flow -$50,000 $45,000 $5,000 $5,000 Project B Cash Flow -$50,000 $5,000 $5,000 $50,000 a. Compute the IRR for each project. b) Compute the NPV for each project if the appropriate discount rate is 5%.   Which project would you take, and why? c)  Compute the NPV for each...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT