Question

In: Finance

Year Project(A) Project (B) 0 -$30,000 -$30,000 1 13,000 5,000 2 11,000 5,000 3 9,000 5,000...

Year

Project(A)

Project (B)

0

-$30,000

-$30,000

1

13,000

5,000

2

11,000

5,000

3

9,000

5,000

4

7,000

5,000

5

0

5,000

6

7

8

9

10

0

0

0

0

0

5,000

5,000

5,000

5,000

5,000

The required rate of return is 10%.

3). What is the payback period for each of the projects? Which project should be accepted if the payback period method is applied? Assume that the target payback period is 4 years. Explain why.

(4). What is the discounted payback period for each of the projects? Which project should be accepted if the discounted payback period method is applied? Assume that the target discounted payback period is 4 years. Explain why.

(5). What is the profitability index for each of the projects? Which project should be accepted if the profitability index method is applied? Explain why.

(6). What is the average accounting return (AAR) for each of the projects, assuming that cash flows occurring after year 0 are net income? Which project should be accepted if the AAR method is applied? Also, assume that the target AAR is 20%.

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Year A B C 0 -10,000 -13,000 -15,000 1 5,000 5,000 7,000 2 6,000 2,000 2,000...
Year A B C 0 -10,000 -13,000 -15,000 1 5,000 5,000 7,000 2 6,000 2,000 2,000 3 7,000 6,000 1,000 4 2,000 1,000 5,000 5 1,000 7,000 6,000 Which projects will the firm accept if the payback period is three years? Which projects will the firm accept if the discounted payback period is three years? Discount rate is 7%
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000...
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000 35,000 4 55,000 25,000 5 85,000 20,000 At what WACC would there be a break-even between the two projects? 7.23% 8.48% 7.57% 7.89% What is the NPV for Project A assuming the WACC is 10%? $5,653.94 $10,522.64 $6,219.33 $11,574.90 What is the IRR for Project B? 11.2% 13.9% 11.6% 10.9% What is the discounted payback period of Project A assuming the WACC is 10%?...
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000...
Year Project A Project B 0 -$150,000 -$150,000 1 8,000 80,000 2 30,000 40,000 3 45,000 35,000 4 55,000 25,000 5 85,000 20,000 At what WACC would there be a break-even between the two projects? 7.23% 8.48% 7.57% 7.89% What is the NPV for Project A assuming the WACC is 10%? $5,653.94 $10,522.64 $6,219.33 $11,574.90 What is the IRR for Project B? 11.2% 13.9% 11.6% 10.9% What is the discounted payback period of Project A assuming the WACC is 10%?...
Consider the following investment opportunities. Period A B C D 0 -12,500 -11,000 12,500 -13,000 1...
Consider the following investment opportunities. Period A B C D 0 -12,500 -11,000 12,500 -13,000 1 5,400 -3,000 -7,000 5,500 2 14,400 21,000 -2,000 5,500 3 7,200 13,000 4,000 8,500 a) Compute the present worth of each investment, assuming a MARR of 15% b) Compute the future worth of each investment, assuming a MARR of 15% c) Which project or projects are acceptable?
Year Project A Project B 0 −$330 −$330 1 160 230 2 160 230 3 160...
Year Project A Project B 0 −$330 −$330 1 160 230 2 160 230 3 160 230 4 160 a. If the opportunity cost of capital is 12%, calculate NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project NPV A $ 485.98 B 552.42 b. Which of these projects is worth pursuing if you have enough funds and they are not mutually exclusive? Project A Project B Both
Year Project A Project B 0 -425,000 -500,000 1 200,000 280,000 2 210,000 220,000 3 175,000...
Year Project A Project B 0 -425,000 -500,000 1 200,000 280,000 2 210,000 220,000 3 175,000 180,000 4 175,000 180,000 5 175,000 180,000 Use the IRR approach to determine which project to choose. Graph the NPV profiles for each project. At what rate will the two projects have the same NPV?
Consider cash flows for projects A and B Year: 0, 1, 2, 3, 4, 5 Project...
Consider cash flows for projects A and B Year: 0, 1, 2, 3, 4, 5 Project A: -$1000, 375, 375, 375, 375,-100 Project B: -$1000, 900, 700, 500, -200, 200 The cost of capital for both projects is 10% 1. Find the NPV and MIRR of projects A and B. If project A and B are mutually exclusive. 2. Find the crossover rate for projects A and B. 3. What is the profitability index for projects A and B? How...
Year Revenues 1 $60,000     2 40,000     3 30,000     4 10,000     Thereafter 0...
Year Revenues 1 $60,000     2 40,000     3 30,000     4 10,000     Thereafter 0         Expenses are expected to be 30% of revenues, and working capital required in each year is expected to be 10% of revenues in the following year. The product requires an immediate investment of $81,000 in plant and equipment.     a. What is the initial investment in the product? Remember working capital.       Initial investment $         b. If the plant and equipment...
Project Y Time    Cash Flow 0    -5,000 1 500 2 2000 3    3000...
Project Y Time    Cash Flow 0    -5,000 1 500 2 2000 3    3000 4 1500 5    500 Compute the discounted payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown in the table if the appropriate cost of capital is 12 percent and the maximum allowable discounted payback is 3.5 years. A. 3.00 years, accept B. 3.45 years, accept C. 3.86 years, accept D. 3.45...
Project Wind Power Year 0 Year 1 Year 2 Year 3 Costs $6,000,000 $4,000,000 $0 $0...
Project Wind Power Year 0 Year 1 Year 2 Year 3 Costs $6,000,000 $4,000,000 $0 $0 Benefits $18,000,000 $15,000,000 $12,000,000 $12,000,000 Project Hydroelectric power Year 0 Year 1 Year 2 Year 3 Costs $4,000,000 $2,000,000 $1,000,000 $0 Benefits $10,000,000 $14,000,000 $15,000,000 $16,000,000 If the interest rate is 3%, which project would you choose and why? Show your work using excel (15 points) If the interest rate is 15%, which project would you choose and why? Show your work using excel...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT