Question

In: Finance

Consider the following two projects, and assume a company's cost of capital is 15 percent. Find...

Consider the following two projects, and assume a company's cost of capital is 15 percent. Find the IRR and NPV of each project. Which projects add value to the company? If the company can choose only a single project, which project should it choose? Please show through excel sheets and equations.

Year 1 Year 2 Year 3 Year 4
Project 1 -$40 $130 $19 $26
Project 2 -$80 $36 $36 $36

Solutions

Expert Solution


Related Solutions

Consider the following three projects; assume 14 percent cost of capital. Period Project A    Project...
Consider the following three projects; assume 14 percent cost of capital. Period Project A    Project B                   Project C                   T=0                                               ($3,000)                     ($5,000)                     ($2,000)                   T=1                                               $1,000                       $1,500                            $900                   T=2                                               $1,200                      $1,500                            $900                   T=3                                               $1,500                      $2,500                            $700                   T=4                                               $1,500                       $2,500                            $700                          When you have only $5,000 to support the above projects, which project (or projects) should be chosen under the Profitability Index?
Consider the following projects and assume an opportunity cost of capital of 12%.
Consider the following projects and assume an opportunity cost of capital of 12%. a. Calculate the Net Present Value (NPV) of each project. Which is to be preferred and why?(8 marks)b. If there is a capital constraint in place which limits spending to £10,000, which project or projects should be selected? Support your answer with calculations.
Crane Corp. management is evaluating two mutually exclusive projects. The cost of capital is 15 percent....
Crane Corp. management is evaluating two mutually exclusive projects. The cost of capital is 15 percent. Costs and cash flows for each project are given in the following table. Year Project 1 Project 2 0 -$1,291,014 -$1,324,281 1 269,000 385,000 2 346,000 385,000 3 407,000 385,000 4 519,000 385,000 5 799,000 385,000 Calculate NPV and IRR of two projects. (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to...
Crane Corp. management is evaluating two mutually exclusive projects. The cost of capital is 15 percent....
Crane Corp. management is evaluating two mutually exclusive projects. The cost of capital is 15 percent. Costs and cash flows for each project are given in the following table. Year Project 1 Project 2 0 -$1,266,016 -$1,209,606 1 263,000 345,000 2 358,000 345,000 3 416,000 345,000 4 547,000 345,000 5 721,000 345,000 Calculate NPV and IRR of two projects. (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to...
Consider Fulton Manufacturing Company's 51/2 percent bonds that mature on April 15, Year 15. Assume that...
Consider Fulton Manufacturing Company's 51/2 percent bonds that mature on April 15, Year 15. Assume that the interest on these bonds is paid and compounded annually. Determine the value of a $1,000 denomination Fulton bond as of April 15, Year 1, to an investor who holds the bond until maturity and has the following required rate of return. Use Table II and Table IVto answer the questions. Round your answers to the nearest cent. 7 percent $    9 percent $   ...
What is the NPV for the following project if its cost of capital is 15 percent...
What is the NPV for the following project if its cost of capital is 15 percent and its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $2,000,000 in year 1, $2,000,000 in year 2, $2,000,000 in year 3 and $1,410,000 in year 4? a. 1,700,000 b. 372622 c.-137,053 d. none of the above
Consider Fulton Manufacturing Company's 33/4 percent bonds that mature on April 15, Year 12. Assume that...
Consider Fulton Manufacturing Company's 33/4 percent bonds that mature on April 15, Year 12. Assume that the interest on these bonds is paid and compounded annually. Determine the value of a $1,000 denomination Fulton bond as of April 15, Year 1, to an investor who holds the bond until maturity and has the following required rate of return. 7%, 9%, 11%. What would be the value of the Fulton bonds at an 8 percent required rate of return if the...
a) Four investment projects have the following net cash flows. The cost of capital is 15%....
a) Four investment projects have the following net cash flows. The cost of capital is 15%. Decide which of them should be accepted using the net present value method. Find the discounted payback period. YEAR PROJECT A PROJECT B PROJECT C PROJECT D 0 (10,000) (15,000) (20,000) (30,000) 1 5,000 5,000 10,000 0 2 5000 5,000 10,000 0 3 20,000 5,000 4,000 100,000 4 1,000 10,000 2,000 120,000 5 - 5,000 - 60,000
Fama's Llamas has a weighted average cost of capital of 11.5 percent. The company's cost of...
Fama's Llamas has a weighted average cost of capital of 11.5 percent. The company's cost of equity is 16 percent, and its pretax cost of debt is 7.5 percent. The tax rate is 34 percent. What is the company's target debt-equity ratio? (Do not round your intermediate calculations.)
Fama's Llamas has a weighted average cost of capital of 11.5 percent. The company's cost of...
Fama's Llamas has a weighted average cost of capital of 11.5 percent. The company's cost of equity is 17 percent, and its pretax cost of debt is 8.5 percent. The tax rate is 35 percent. What is the company's target debt-equity ratio? A. 0.8745 B. 1.8333 C. 0.9573 D. 0.9665 E. 0.9205
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT