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
jeff jeffy answered 3 years agoRelated 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...
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