Question

In: Finance

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 add the most value to the company? Justify your answer using the EAA

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 month ago
Next > < Previous

Related Solutions

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 $75,000 at time zero. Which project has the highest NPV. Assuming that these projects will most likely be repeated indefinitely into the future, which project would...
ABC Company is considering investing in two mutually exclusive projects, L and S. The two projects’...
ABC Company is considering investing in two mutually exclusive projects, L and S. The two projects’ forecasted cash flows are shown as below. WACC is 10%. Year 0 1 2 3 4 Project L CF ($) -1,000    700 500 200 0 Project S CF ($) -1,200 100 300 800 1,000 a. Calculate the NPVs for both projects. b. Calculate the IRRs for both projects. c. Calculate the Discounted Paybacks for both projects. [Draw a timeline] d. Based on your...
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%...
Thomas Company is considering two mutually exclusive projects. The​ firm, which has a cost of capital...
Thomas Company is considering two mutually exclusive projects. The​ firm, which has a cost of capital of 8%, has estimated its cash flows as shown in the following​ table: A is on the left, B is on the right Initial investment 130000 102000 Year Cash inflows 1 20000 55000 2 40000 40000 3 50000 20000 4 60000 15000 5 50000 20000 a.  Calculate the NPV of each​ project, and assess its acceptability. b.   Calculate the IRR for each​ project, and...
Company A is considering the following two mutually exclusive projects. Company A bases their capital budgeting...
Company A is considering the following two mutually exclusive projects. Company A bases their capital budgeting decisions solely on the NPV criteria. (Do not round intermediate calculations. Round your final answer to two decimal places.) Year Project 1 Project 2 0 -$75,000 -$75,000 1 $50,000 $20,000 2 $30,000 $21,000 3 $15,000 $59,000 1. At what required rate of return (%) is Company A indifferent between the two projects? 2. If the required rate of return is less than the crossover...
KORONA Manufacturing is considering investing in either of two mutually exclusive projects, A and B. The...
KORONA Manufacturing is considering investing in either of two mutually exclusive projects, A and B. The firm has a 14 percent cost of capital, and the risk-free rate is currently 9 percent. The initial investment, expected cash inflows, and certainty equivalent factors associated with each of the projects are shown in the following table. Project A Project B Initial investment (II) $ 40,000 $ 56,000 Year (t) Cash inflows (CFt) Certainty equivalent factors (αt) Cash inflows (CFt) Certainty equivalent factors...
Stephens, Inc. is considering investing in one of two mutually exclusive 4-year projects. Project A requires...
Stephens, Inc. is considering investing in one of two mutually exclusive 4-year projects. Project A requires equipment with a cost of $140,000 and increases net income by $5,000, $10,000, $20,000 and $30,000 in years 1-4, respectively. Project B requires equipment with a cost of $200,000 and increases cash flow by $70,000 per year in years 1-4. Both projects have a 4-year life and the equipment will be depreciated using straight-line depreciation. What is the NPV of project A at a...
Braun Industries is considering the following mutually exclusive projects. Braun’s cost of capital is 9%.           ...
Braun Industries is considering the following mutually exclusive projects. Braun’s cost of capital is 9%.            Year        Project A                Project B             0             ($86,000)                ($86,000)             1             $42,000                  $63,000             2             $32,000                  $28,000 3             $12,900                  $8,000      4             $12,200                  $3,000 5             $12,000                  $2,000 a.   Calculate each project’s NPV and IRR. b.   Find the Payback Period for each project. c.   Find the MIRR for each project. d.   Which of these projects should Braun accept? Why?
Jamison is considering two mutually exclusive projects with the following cash flows and the cost of...
Jamison is considering two mutually exclusive projects with the following cash flows and the cost of capital of 10%. Year XX YY 0 -$1,000 -$1,200 1 $800 $700 2 $800 $700 3 $700 a) Based on Annualized NPV, which project would you choose? Why ANPV is better than NPV in this case.?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT