Question
In: Finance
DEF Manufacturing Company has considered investing in two independent projects, which both will result in a...
DEF Manufacturing Company has considered investing in two independent projects, which both will result in a cost of $1,500,000. Each project is expected to last 6 years. Project A ‘s annual cash flows are listed as follows: Year 1: $265,000; Year 2: $265,000; Year 3: $265,000 Year 4: $525,000; Year 5: $449,000; Year 6: $820,000. Project B annual cash flows are listed as follows: Year 1: $220,000; Year 2: $449,000; Year 3: $525,000; Year 4: $765,000; Year 5: $765,000; Year 6: $765,000. DEF’s cost of capital is 12%.
A) Calculate each project’s NPV.
B) Compute each project’s IRR.
C) Calculate Payback Period for both projects
D) As the financial analyst evaluating this project, would you accept/reject one or accept or reject
both? Would your answer change if the projects were mutually exclusive?
Solutions
jeff jeffy answered 4 months agoRelated Solutions
BBB Manufacturing Company has considered investing in two independent projects, which both will result in a...
BBB Manufacturing Company has considered investing in two
independent projects, which both will result in a
cost of $1,200,000. Each project is expected to last 5 years.
Project A ‘s annual cash flows are listed as follows: Year 1:
$325,000; Year 2: $440,000; Year 3: $270,000 Year 4: $550,000; and
Year 5: $265,000. Project B annual cash flows are listed as
follows: Year 1: $880,000; Year 2: $500,000; Year 3: $300,000; Year
4: $200,000; and Year 5: $1,000. BBB’s cost...
You are contemplating investing into two different projects. Both projects are of equally low risk and...
You are contemplating investing into
two different projects. Both projects are of equally low risk and
their cash flows are provided below.
Year
Project “Gold”
Project “Blue”
0
-$50,000
-$25,000
1
$22,500
$3,000
2
$18,750
$6,000
3
$15,250
$12,000
4
$15,000
$24,000
Determine the NPV of each project at a
6% cost of capital. Which is preferable?
Based on the profitability index,
which would you prefer?
At what discount rate would you be
indifferent between the projects (i.e., calculate the...
Given the following independent projects, all of which can be considered to be viable for only...
Given the following independent projects, all
of which can be considered to be viable for only 10 years. If the
company's MARR is 15% per year, determine which should be selected
on the basis of a present worth analysis. Financial Values are in
$1,000 units.
Projects
A
B
C
D
First Cost, $
-1200
-2000
-5000
-7000
Annual net Income, $/Year
300
400
1100
1300
Salvage Value
5
6
8
9
Group of answer choices
A.) B and C
B.)...
Suppose a company has two mutually exclusive projects, both of which are three years in length....
Suppose a company has two mutually exclusive projects, both of
which are three years in length. Project A has an initial outlay of
$6,000 and has expected cash flows of $4,000 in year 1, $5,000 in
year 2, and $5,000 in year 3. Project B has an initial outlay of
$9,000 and has expected cash flows of $2,000 in year 1, $4,000 in
year 2, and $5,000 in year 3. The required rate of return is 10%
for projects at...
Suppose a company has two mutually exclusive projects, both of which are three years in length....
Suppose a company has two mutually exclusive projects, both of
which are three years in length. Project A has an initial outlay of
$7,000 and has expected cash flows of $3,000 in year 1, $4,000 in
year 2, and $4,000 in year 3. Project B has an initial outlay of
$10,000 and has expected cash flows of $2,000 in year 1, $4,000 in
year 2, and $5,000 in year 3. The required rate of return is 12%
for projects at...
Suppose a company has two mutually exclusive projects, both of which are three years in length....
Suppose a company has two mutually exclusive projects, both of
which are three years in length. Project A has an initial outlay of
$8,000 and has expected cash flows of $3,000 in year 1, $4,000 in
year 2, and $6,000 in year 3. Project B has an initial outlay of
$7,000 and has expected cash flows of $4,000 in year 1, $5,000 in
year 2, and $6,000 in year 3. The required rate of return is 13%
for projects at...
Your company is trying to decide which one of two projects it should accept. Both projects...
Your company is trying to decide which one of two projects it
should accept. Both projects have the same start-up costs. Project
1 will produce annual cash flows of $52 000 at the end of each year
for six years. Project 2 will produce cash flows of $39 000 at the
beginning of each year for eight years. The company requires a 15%
return. Required:
a. Whichprojectshouldthecompanyselectandwhy?
b.
Whichprojectshouldthecompanyselectiftheinterestrateis12%atthe
cash flows in Project 2 is also at the end of...
5. You are considering two independent projects. The required return for both projects is 13 percent....
5. You are considering two independent projects. The required
return for both projects is 13 percent. Project A has an initial
cost of $145,000 and cash inflows of $62,000, $53,000, and $70,000
for Years 1 to 3, respectively. Project B has an initial cost of
$95,000 and cash inflows of $40,000, $44,000, and $35,000 for Years
1 to 3, respectively. Given this information, which one of the
following statements is correct based on the NPV and IRR methods of
analysis?...
A company is evaluating two independent projects for capital investment purposes. If the company has only...
A company is evaluating two independent projects for capital
investment purposes. If the company has only $85 million to invest,
and its required return is 10 percent by how much the company’s
value will increase?
All values are in millions.
Project 1
Project 2
0
-50
-50
1
30
0
2
25
0
3
20
0
4
20
150
A) 52.45 million
B) 26.62 million
C) 79.07 million
D) 60.77 million
E) 45.33 million
Which one of the following statements would generally be considered as accurate given independent projects with...
Which one of the following statements would generally be
considered as accurate given independent projects with conventional
cash flows?
The profitability index rule cannot be applied in this
situation.
The payback decision rule could override the net present value
decision rule should cash availability be limited.
Business practice dictates that independent projects should have
three distinct accept indicators before a project is actually
implemented.
The internal rate of return decision may contradict the net
present value decision.
The projects cannot...
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