Question
In: Finance
1. The Blake Computer Business is trying to choose between the following two mutually exclusive projects:...
1. The Blake Computer Business is trying to choose between the following two mutually exclusive projects: (note this may be done in Excel!)
| Year | A | B |
| 0 | -$40,000 | -$15,000 |
| 1 | 21,000 | 8,500 |
| 2 | 21,000 | 8,500 |
| 3 | 21,000 | 8,500 |
The cost of capital is 10%.
a. Calculate the payback period, IRR, MIRR, and NPV of each investment. For MIRR assume the reinvestment rate is equal to the company’s cost of capital.
b. Assess the acceptability of each project based on each result in (a). That is, go through each answer and decide whether or not the project is acceptable under each model’s specific decision criteria.
c. Graph the NPV profiles of each investment. This needs to be done in Excel. You should present the discount rate on the x-axis (use a large array of potential discount rates) and the NPV should be on the y-axis. Both NPV profiles (for A and B) should be presented in the same graph.
d. Calculate the cross-over rate for these two projects.
e. Ultimately, which project would you recommend and why? Please be specific and detailed in your response.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: ...
The Sloan Corporation is trying to choose between the following
two mutually exclusive design projects:
Year
Cash Flow
(I)
Cash Flow
(II)
0
–$
61,000
–$
18,300
1
28,100
9,950
2
28,100
9,950
3
28,100
9,950
a-1
If the required return is 10 percent, what is the profitability
index for both projects? (Do not round intermediate
calculations. Round your answers to 3 decimal places, e.g.,
32.161.)
Profitability
Index
Project I
Project II
a-2
If...
The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: Year...
The Sloan Corporation is trying to choose between the following
two mutually exclusive design projects:
Year
Cash Flow (I)
Cash Flow (II)
0
–$
63,000
–$
15,500
1
28,900
7,900
2
28,900
7,900
3
28,900
7,900
a-1.
If the required return
is 10 percent, what is the profitability index for both projects?
(Do not round intermediate calculations and round your
answers to 3 decimal places, e.g., 32.161.)
a-2.
If the company applies
the profitability index decision rule, which project should...
Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects: ...
Cori's Sausage Corporation is trying to choose between the
following two mutually exclusive design projects:
Year
Cash Flow (I)
Cash Flow (II)
0
–$
50,000
–$
24,800
1
24,700
13,200
2
24,700
13,200
3
24,700
13,200
a-1.
If the required return is 11 percent, what is the profitability
index for each project? (Do not round intermediate
calculations and round your answers to 3 decimal places, e.g.,
32.161.)
Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects: ...
Cori's Sausage Corporation is trying to choose between the
following two mutually exclusive design projects:
Year
Cash Flow (I)
Cash Flow (II)
0
–$
62,000
–$
36,800
1
28,300
16,800
2
28,300
16,800
3
28,300
16,800
a-1.
If the required return is 11 percent, what is the profitability
index for each project? (Do not round intermediate
calculations and round your answers to 3 decimal places, e.g.,
32.161.)
a-2.
If the company applies the profitability index decision rule,...
Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects: ...
Cori's Sausage Corporation is trying to choose between the
following two mutually exclusive design projects:
Year
Cash Flow (I)
Cash Flow (II)
0
–$
60,000
–$
34,800
1
27,700
16,200
2
27,700
16,200
3
27,700
16,200
a-1.
If the required return is 12 percent, what is the profitability
index for each project? (Do not round intermediate
calculations and round your answers to 3 decimal places, e.g.,
32.161.)
a-2.
If the company applies the profitability index decision rule,...
Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects: ...
Cori's Sausage Corporation is trying to choose between the
following two mutually exclusive design projects:
Year
Cash Flow (I)
Cash Flow (II)
0
–$
59,000
–$
33,800
1
27,400
15,900
2
27,400
15,900
3
27,400
15,900
a-1.
If the required return is 11 percent, what is the profitability
index for each project?(Do not round intermediate
calculations and round your answers to 3 decimal places, e.g.,
32.161.)
a-2.
If the company applies the profitability index decision rule,
which...
Jefferson International is trying to choose between the following two mutually exclusive design projects. The required...
Jefferson International is trying to choose between the
following two mutually exclusive design projects. The required
return is 12 percent. If the company applies the internal rate of
return (IRR) decision rule, which project should the firm accept?
If the company applies the NPV decision rule, which project should
it take? Given your first two answers, which project should the
firm actually accept?
Year
Project A
Project B
0
-$75,000
-$38,000
1
$32,400
$17,800
2
$30,200
$14,200
3
$36,600
$19,800
Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects: ...
Cori's Sausage
Corporation is trying to choose between the following two mutually
exclusive design projects:
Year
Cash Flow (I)
Cash Flow (II)
0
–$
65,000
–$
39,800
1
29,200
18,000
2
29,200
18,000
3
29,200
18,000
a-1.
If the required return
is 12 percent, what is the profitability index for each
project?(Do not round intermediate calculations and round
your answers to 3 decimal places, e.g., 32.161.)
Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects: Year...
Cori's Sausage Corporation is trying to choose between the
following two mutually exclusive design projects:
Year
Cash Flow (I)
Cash Flow (II)
0
–$
47,000
–$
21,800
1
23,800
12,300
2
23,800
12,300
3
23,800
12,300
a-1.
If the required return is 11 percent, what is the profitability
index for each project? (Do not round intermediate
calculations and round your answers to 3 decimal places, e.g.,
32.161.)
a-2.
If the company applies the profitability index decision rule,
which project should...
Jefferson International is trying to choose between the following two mutually exclusive design projects: Year Cash...
Jefferson International is trying to choose between the
following two mutually exclusive design projects:
Year
Cash Flow A
Cash Flow B
0
-$75,000
-$38,000
1
32,400
17,800
2
30,200
14,200
3
36,600
19,800
The required return is 12 percent.
i) Rank the projects using profitability index (PI) decision
rule.
ii) If the company applies the NPV decision rule, which project
should it take?
iii) Given your first two answers, which project should the firm
accept?
B
Suppose the company is...
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