Question
In: Finance
The cash flows for three independent projects are found below: Year 0 (Initial investment) $(70,000)...
The cash flows for three independent projects are found below:
|
Year 0 (Initial investment) |
$(70,000) |
$(110,000) |
$(420,000) |
|||
|
Year 1 |
$11,000 |
$28,000 |
$220,000 |
|||
|
Year 2 |
17,000 |
28,000 |
220,000 |
|||
|
Year 3 |
21,000 |
28,000 |
220,000 |
|||
|
Year 4 |
26,000 |
28,000 |
— |
|||
|
Year 5 |
33,000 |
28,000 |
— |
.
a. Calculate the IRR for each of the projects.
b. If the discount rate for all three projects is 13 percent, which project or projects would you want to undertake?
c. What is the net present value of each of the projects where the appropriate discount rate is 13 percent?
Solutions
Expert Solution
| Year 0 | (70,000) | (110,000) | (420,000) | |
| Year 1 | 11,000 | 28,000 | 220,000 | |
| Year 2 | 17,000 | 28,000 | 220,000 | |
| Year 3 | 21,000 | 28,000 | 220,000 | |
| Year 4 | 26,000 | 28,000 | - | |
| Year 5 | 33,000 | 28,000 | - | |
| a. | IRR | 13.72% | 8.62% | 26.51% |
| c. | NPV | 1,459.43 | (11,517.52) | 99,453.57 |
b. If the discount rate is 13% then you should undertake the 1st and 3rd project since its IRR is greater than 13%
Excel formulas:
jeff jeffy answered 2 years agoRelated Solutions
Projects A B Cost (initial investment) 40000 250000 Year Cash flows of A Cash flows of...
Projects A B
Cost (initial investment) 40000 250000
Year Cash flows of A Cash flows of B
1 10000 40000
2 10000 120000
3 10000 200000
4 10000 200000
5 10000 200000
6 10000 200000
What are the Payback Periods of Projects A, and B? Assume all
cash flows are evenly spread throughout the year and already
discounted. If the cut-off period ( الفتره المقبوله) is three
years, which projects do you accept?
You are analyzing two projects with the cash flows shown below. Year: 0 &nb
You are analyzing two projects with the cash flows shown
below.
Year:
0
1
2
3
4
5
Project 1:
-$6,000
$1,000 $1,000 $1,500
$2,000 $4,000
Project 2:
-$6,000
$2,500 $2,000 $1,500
$1,000 $1,500
Construct an NPV chart with discount rates from 1% -
25%. On your NPV chart, please identify and label the
following points:
a) The IRR of project 1 (calculate the value and label the...
Assume a $70,000 investment and the following cash flows for two alternatives. Year Investment X Investment...
Assume a $70,000 investment and the following cash flows for two
alternatives.
Year
Investment X
Investment Y
1
$15,000
$35,000
2
20,000
20,000
3
20,000
20,000
4
20,000
—
5
15,000
—
a. Calculate the payback for investment X and Y.
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
b. Which alternative would you select under the
payback method?
Investment X
Investment Y
The cash flows for the two projects are as follows? ($ million): Project Year 0 Year...
The cash flows for the two projects are as follows? ($
million):
Project
Year 0
Year 1
Year 2
Year 3
Year 4
A
- $ 100
$26
$28
$42
$52
B
-$ 100 $52 $42 $28 $18
a. What is the IRR of each? project?
b. What is the NPV of each project at your cost of? capital?
c. At what cost of capital are you indifferent between the two?
projects?
d. What should you? do?
1).A project requires an initial investment of $973,000. The projects generates cash flows of $250,000 in...
1).A project requires an initial investment of $973,000. The
projects generates cash flows of $250,000 in year 1, $300,000 in
year 2, $300,000 in year 3, $400,000 in year 4 and $400,000 in year
5. If the required rate of return for the project is 12 percent,
the payback period is ____________ and the discounted payback
period is _______________.
A).3.7 years; 4.5 years B).2.8
years; 3.9 years C). 2.8 years; 4.2 years
D).3.3 years; 3.9 years E).3.3
years; 4.2 years...
Your firm has identified three potential investment projects. The projects and their cash flows are shown...
Your firm has identified three potential investment projects.
The projects and their cash flows are shown here: (
Project
Cash Flow Today
(millions)
Cash Flow in One Year
(millions)
A
−$6
$17
B
$3
$6
C
$16
−$5
Suppose all cash flows are certain and the risk-free interest
rate is 7%.
a. What is the NPV of each project?
b. If the firm can choose only one of these projects, which
should it choose?
c. If the firm can choose...
Your firm has identified three potential investment projects. The projects and their cash flows are shown...
Your firm has identified three potential investment projects.
The projects and their cash flows are shown here:
Project
Cash Flow Today
(millions)
Cash Flow in One Year
(millions)
A
−$7
$17
B
$6
$6
C
$15
−$14
Suppose all cash flows are certain and the risk-free interest
rate is
7%.
a. What is the NPV of each project?
b. If the firm can choose only one of these projects, which
should it choose?
c. If the firm can choose any...
The following are the cash flows of two projects: Year Project A Project B 0 ?$...
The following are the
cash flows of two projects:
Year
Project A
Project B
0
?$
380
?$
380
1
210
280
2
210
280
3
210
280
4
210
If the opportunity
cost of capital is 11%, what is the profitability index for each
project? (Do not round intermediate calculations. Round
your answers to 4 decimal places.)
The following are the cash flows of two projects: Year Project A Project B 0 ?$...
The following are the cash flows of two projects:
Year Project A Project B
0 ?$ 280 ?$ 280
1 160 180
2 160 180
3 160 180
4 160
If the opportunity cost of capital is 10%, what is the
profitability index for each project? (Do not round intermediate
calculations. Round your answers to 4 decimal places.) Project A
Profitability Index Project B
The following are the cash flows of two projects: Year Project A Project B 0 −$...
The following are the cash flows of two projects: Year Project A
Project B 0 −$ 290 −$ 290 1 170 190 2 170 190 3 170 190 4 170 If
the opportunity cost of capital is 11%, what is the profitability
index for each project? (Do not round intermediate calculations.
Round your answers to 4 decimal places.)
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