Question
In: Finance
Projects A and B, both of equal risk, are mutually exclusive alternatives for expanding Corporation’s capacity....
Projects A and B, both of equal risk, are mutually exclusive alternatives for expanding Corporation’s capacity. The firm’s cost of capital is 13%. The cash flows for each project are shown in the following table.
Project A Project B
Year 0: ($80,000) Year 0: ($80,000)
Year 1: $15,000 Year 1: $15,000
Year 2: $20,000 Year 2: $15,000
Year 3: $25,000 Year 3: $15,000
Year 4: $30,000 Year 4: $35,000
Year 5: $30,000 Year 5: $25,000
A. What is each project’s payback period?
B. What is each project’s net present value?
C. What is each project’s internal rate of return?
D. Which project should Corporation accept and why? Explain.
Solutions
Expert Solution
Answer of Part d:
Project A should be accepted beacuse the IRR and NPV is higher than the Project B.
jeff jeffy answered 2 years agoRelated Solutions
Projects A and B, both of equal risk, are mutually exclusive alternatives for expanding Corporation’s capacity....
Projects A and B, both of equal risk,
are mutually exclusive alternatives for expanding
Corporation’s capacity. The firm’s cost of capital is 13%. The cash
flows for each project are shown in the following table.
Project
A
Project B
Year
0:
($80,000)
Year
0:
($80,000)
Year
1:
$15,000
Year
1:
$15,000
Year
2:
$20,000
Year
2:
$15,000
Year
3:
$25,000
Year
3:
$15,000
Year
4:
$30,000
Year
4:
$35,000
Year
5:
$30,000 ...
The following two projects of equal risk are mutually exclusive alternatives for expanding the firm’s capacity....
The following two projects of equal risk are mutually exclusive
alternatives for expanding the firm’s capacity. The firm’s cost of
capital is 15%. The cash flows for each project are given in the
following table.
Year Project A Project B
0 210,000 20,000
1 15,000 12,000
2 30,000 10,500
3 32,000 9,500
4 425,000 8,200
Required:
a) Calculate each project’s payback period. Using the payback
period criterion which project is preferable? b)
Calculate the net present value for each project....
The following two projects of equal risk are mutually exclusive alternatives for expanding the firm’s capacity....
The
following two projects of equal risk are mutually exclusive
alternatives for expanding the firm’s capacity. The firm’s cost of
capital is 15%. The cash flows for each project are given in the
following table.
PROJECT A
PROJECT B
Initial investment
210,000
20,000
Year
Net cash inflows
Net cash inflows
1
15,000
12,000
2
30,000
10,500
3
32,000
9,500
4
425,000
8,200
Projects A and? B, of equal? risk, are alternatives for expanding Rosa? Company's capacity. The? firm's...
Projects A and? B, of equal? risk, are alternatives for
expanding Rosa? Company's capacity. The? firm's cost of capital is
11?%.
The cash flows for each project are shown in the following?
table:
Project A
Project B
Initial investment
?(CF
0CF0?)
?$130,000
?$100,000
Year
?(t?)
Cash inflows
?(CF Subscript
tCFt?)
1
?$30,000
?$30,000
2
?$35,000
?$30,000
3
?$40,000
?$30,000
4
?$45,000
?$30,000
5
?$50,000
?$30,000
a.??Calculate each? project's payback
period.
b.??Calculate the net present value?
(NPV) for each project.
c.??Calculate...
Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's...
Projects A and B, of equal risk, are alternatives for
expanding Rosa Company's capacity. The firm's cost of capital is
13%.
The cash flows for each project are shown in the following
table: .
a. Calculate each project's payback
period.
b. Calculate the net present value (NPV) for each project.
c. Calculate the internal rate of return (IRR) for each
project.
d. Indicate which project you would recommend.
Initial investment $160,000
$130,000
Year Cash inflows
1 $40,000 $40,000
2 $45,000 ...
All techniques with NPV profile Mutually exclusive projects Projects A and B, of equal risk, are...
All techniques with NPV profile Mutually exclusive
projects Projects A and B, of equal risk, are alternatives for
expanding Rosa Company's capacity. The firm's cost of capital is
16%. The cash flows for each project are shown in the following
table:
Initial investment $130,000
$100,000
Year Cash inflows
1 $30,000 $30,000
2 $35,000 $30,000
3 $40,000 $30,000
4 $45,000 $30,000
5 $50,000 $30,000
a. Calculate each project's payback
period.
b. Calculate the net present value (NPV) for each project.
c. ...
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the...
Two mutually exclusive alternatives are bring considered: A and
B. Both alternatives cost $1,200 at the present. However, the
pattern of revenue from them is different. Alternative A has the
potential to bring more revenues later in the project life. The
expected revenues of alternative A are: $350, $500, and $850 by the
ends of years one to three, respectively. Alternative B promises
more immediate cash inflow which is expected to diminish with time:
$750, $300, and $100 by the...
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the...
Two mutually exclusive alternatives are bring considered: A and
B. Both alternatives cost $1,200 at the present. However, the
pattern of revenue from them is different. Alternative A has the
potential to bring more revenues later in the project life. The
expected revenues of alternative A are: $350, $500, and $850 by the
ends of years one to three, respectively. Alternative B promises
more immediate cash inflow which is expected to diminish with time:
$750, $300, and $100 by the...
Two mutually exclusive alternatives, A and B (both MACRS-GDS 5 year property), are available. Alternative A...
Two mutually exclusive alternatives, A and B (both MACRS-GDS 5
year property), are available. Alternative A requires an original
investment of $100,000, has a useful life of 6 years, annual
operating costs of $2,500, and a salvage value at the end of year k
given by $100,000 (0.70)k. Alternative B requires an
original investment of $150,000, has a life of 8 years, zero annual
operating costs, and a salvage value at the end of year k given by
$150,000(0.80)k. The...
Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the...
Bell Manufacturing is attempting to choose the better of two
mutually exclusive projects for expanding the firm's warehouse
capacity. The relevant cash flows for the projects are shown in the
following table:
Project X
Project Y
Initial investment
(CF 0CF0)
$500,000
$310,000
Year
(t)
Cash inflows
(CF Subscript tCFt)
1
$130,000
$140,000
2
$130,000
$140,000
3
$130,000
$85,000
4
$180,000
$90,000
5
$270,000
$30,000
The firm's cost of capital is 16%.
a. Calculate the IRR for each of the projects....
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