Question
In: Finance
The table below gives the initial investment and expected cash flows over the next five years...
The table below gives the initial investment and expected cash
flows over the next five years for two different projects. Assume
that the industry you are in expects a return of 10%, which you use
as the discount rate in net present value (NPV) calculations and as
the required rate of return for purposes of deciding on projects.
Also, assume that management only wants to invest in projects that
pay off within four years.
For each project, compute the payback period, NPV, and
internal rate of return (IRR). Then explain whether each project
should be accepted based on these three criteria.
Project A. Project B
Initial
Investment. $40,000. $28,000
Year. Cash Flows
1. $10,000. $10,000
2. $10,000. $13,000
3. $10,000. $5,000
4. $10,000. $5,000
5. $10,000. $6,000
Solutions
Expert Solution
DECISION
We must accept project B.
Since project B has Positive NPV, which means that project B has higher return then project A.
Project B has lower payback period which means Project B initial Investment can be recovered Earlier then project A.
Project B has higher IRR which represent that Project B has better return.
Since all the 3 Condition are favourable to Project B hence Project B should be Accepted.
jeff jeffy answered 2 years agoRelated Solutions
UBTECH Robotics is expected to generate the following free cash flows over the next five years....
UBTECH Robotics is expected to generate the following free cash
flows over the next five years. After which, the free cash flows
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the discounted free cash flow model and the weighted average cost
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UBTECH Robotics FCF Forecast ($ Millions) Year 1999, 2000, 2001,
2002, 2003, 2004
FCF (Amount in Millions)$55, $45, $89, $102, $84, $87
a. Estimate the enterprise value (V0) of UBTECH...
Below are the expected cash flows and interest rates for the next nine years. Cash flows...
Below are the expected cash flows and interest rates for the
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Cash Flows
Interest Rates
Year 0
Years 1 - 2
8%
Year 1
Year 2
+$ 6,500
Year 3
+$ 1,500
Years 3 – 8
6%
Year 4
Year 5
Year 6
-$ 2,500
Year 7
Year 8
Year 9
+$ 10,000
Years 9 - 10
7%
Year 10
i.
Using the Table function within...
A five-year project, if undertaken, will require an initial investment of $95,000. The expected cash flows...
A five-year project, if undertaken, will require an initial
investment of $95,000. The expected cash flows are:
Year
1:
$12,000
Year
2:
$39,000
Year
3:
$39,000
Year
4:
$30,000
Year
5:
$18,000
If the appropriate discount rate for this project is 15 percent,
what is the value of this project today?
Relevant time for $12,000:?
Relevant time for $39,000:?
Relevant time for second $39,000:?
Relevant time for $30,000:?
Relevant time for $18,000:?
Relevant rate:?
Value of $12,000:?
Value of $39,000:?...
Heavy Metal Corporation is expected to generate the following free cash flows over the next five...
Heavy Metal Corporation is expected to generate the following
free cash flows over the next five years.
Year
1
2
3
4
5
FCF ($ million)
53.2
68.1
79.3
74.3
83.5
Thereafter, the free cash flows are expected to grow at the
industry average of
4.4%
per year. Use the discounted free cash flow model and a WACC
of
13.8%
to estimate the following.
a. The enterprise value of Heavy Metal
b. Heavy Metal's share price if the company has...
Heavy Metal Corporation is expected to generate the following free cash flows over the next five...
Heavy Metal Corporation is expected to generate the following
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Using the discounted free cash flow model and a weighted average
cost of capital of 13.2 %: a. Estimate the enterprise value of
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Heavy Metal Corporation is expected to generate the following free cash flows over the next five...
Heavy Metal Corporation is expected to generate the following
free cash flows over the next five years:
(in millions)
Year 1 : 54.4
Year 2: 66.2
Year 3: 79.5
Year 4: 73.6
Year 5: 80.2
Thereafter, the free cash flows are expected to grow at the
industry average of 4.5% per year. Using the discounted free cash
flow model and a weighted average cost of capital of 14.6%:
a. Estimate the enterprise value of Heavy Metal.
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Plane Industries is expected to generate the free cash flows over
the next four years (listed below), after which they are expected
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dollars. If the weighted average cost of capital is 12% and Plane
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Cash Flow by year
year 1: $14
year...
Conundrum Mining is expected to generate the above free cash flows over the next four years,...
Conundrum Mining is expected to generate the above free cash
flows over the next four years, after which they are expected to
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capital is 12% and Conundrum has cash of $80 million, debt of $60
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Year
1
2
3
4
Free Cash Flow
$12 million
$18 million
$22 million
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$16.16
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You expect ABC Corporation to generate the following free cash flows over the next five years:...
You expect ABC Corporation to generate the following free cash
flows over the next five years:
Year
1
2
3
4
5
FCF ($ millions)
75
84
96
111
120
Beginning with year
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If ABC has $500 million of debt, $50 million of cash, and 14
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Suppose a company had an initial investment of $40,000. The cash flow for the next five...
Suppose a company had an initial investment of $40,000. The cash
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$20,000, and $14,000, respectively. The interest rate is 11%. Enter
your answers rounded to 2 DECIMAL PLACES.
#1What is the discounted payback period?
#2If the firm accepts projects with discounted payback periods
of less than 3 years, will the project be accepted?
Yes
No
#3What is the NPV of the project?
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