Question
In: Accounting
There are two mutually exclusive projects right now. For Project 1, it gives you $ 4200...
There are two mutually exclusive projects right now. For Project
1, it gives you $ 4200 dollar instantly, but you have to pay $1000
at the end of each year for the coming five years. For Project 2,
it requires you to pay $1000 each year for five years. The first
payment happens right now. Every payment happens at the start of
the year. But at the end of the fifth year, you will get $6000 as a
return. It is the start of the first year right now. The real
interest rate is 3%. (30 scores)
a. What are the Internal Rates of Return and Net Present Values for
two projects? b. Which one of them would you choose to invest? Why?
c. What are the payback period and discounted payback period of
Project 1? d. What are the profitability indices of these two
projects?
Solutions
Expert Solution
note that payback period is the period when cash flows are positive
ekkarill92 answered 2 years agoRelated Solutions
Suppose I have two mutually exclusive projects right now. For Project 1, it gives your $...
Suppose I have two mutually exclusive projects right now. For
Project 1, it gives your $ 4200 dollar instantly, but you have to
pay $1000 at the end of each year for the coming five years. For
Project 2, it requires you to pay $1000 each year for five years.
The first payment happens right now. Every payment happens at the
start of the year. But at the end of the fifth year, you will get
$6000 as a return....
1. There are two mutually exclusive projects. Project A requires a $600,000 initial investment and is...
1. There are two mutually exclusive projects. Project A requires
a $600,000 initial investment and is expected to provide $120,000
annual net cash inflows for 6 years. Project B requires a $740,000
initial investment and is expected to provide $200,000 annual net
cash inflows for 4 years.
Which project should you accept according to IRR method when
your cost of capital is 10%?
A. Project A
B. Project B
C. Both
D. Neither of these
2. Leveraged IRR:
A. estimates...
You are considering the following two mutually exclusive projects. YEAR PROJECT (A) PROJECT (B) 0&
You are considering the following two mutually exclusive
projects.
YEAR
PROJECT
(A) PROJECT
(B)
0
-$35,000
-$35,000
1
22,000
13,000
2
20,000
21,000
3
13,000
22,000
What is the internal rate of return of PROJECT A?
You are considering the following two mutually exclusive projects. YEAR PROJECT (A) PROJECT (B) 0&
You are considering the following two mutually exclusive
projects.
YEAR
PROJECT
(A) PROJECT
(B)
0
-$35,000
-$35,000
1
22,000
13,000
2
20,000
21,000
3
13,000
22,000
What is the crossover point?
You are considering two mutually exclusive projects. The NPV for project one is positive and higher...
You are considering two mutually exclusive projects. The NPV for
project one is positive and higher than the NPV for project two,
while the IRR for project two is higher than that for project one.
Which project should the firm accept and why?
You are considering two mutually exclusive projects, A and B. Project A costs $70,000 and generates...
You are considering two mutually exclusive projects, A and
B.
Project A costs $70,000 and generates cash flows of $10,000 for
10 years.
Project B costs $80,000 and generates cash flows of $2,000 for
six years and then cash flows of $28,000 for four years.
Report rates in percentage form to two decimal places i.e.
10.03% not 10%
At what discount rate would make you indifferent between
choosing one project or another?
What is the highest discount rate in which...
You are considering two mutually exclusive projects, A and B. Project A costs $70,000 and generates...
You are considering two mutually exclusive projects, A and
B.
Project A costs $70,000 and generates cash flows of $12,000 for
10 years.
Project B costs $60,000 and generates cash flows of $2,000 for
six years and then cash flows of $29,000 for four years.
Which project would you accept if your discount rate was 10%?
Which project would you accept if your discount rate was 5%?
You are considering the following two mutually exclusive projects. The required return on each project is...
You are considering the following two mutually exclusive
projects. The required return on each project is 14 percent. Which
project should you accept and what is the best reason for that
decision?
Year
Project A
Project B
0
−$
24,000
−$
21,000
1
9,500
6,500
2
16,200
9,800
3
8,700
15,200
Project A; because it pays back faster
Project A; because it has the higher profitability index
Incorrect
Project B; because it has the higher profitability index
Project B; because...
You are considering two mutually-exclusive projects: Project A and Project B. The initial cash outlay (cost)...
You are considering two mutually-exclusive projects: Project A
and Project B. The initial cash outlay (cost) associated with
Project A is $60,000, whereas the initial cash outlay associated
with Project B is $80,000. The required rate of return for both
projects is 10%. The expected annual free cash flows from each
project are as follows:
Year
Project A
Project B
0
- 60,000
-80,000
1
13,000
15,000
2
13,000
15,000
3
13,000
15,000
4
13,000
15,000
5
13,000
15,000
6...
You are considering the following two mutually exclusive projects. Project A Project B Year 0 -$10,000...
You are considering the following two mutually exclusive
projects. Project A Project B Year 0 -$10,000 -$20,000 Year 1 $
3,000 $ 5,000 Year 2 $ 8,000 $ 7,000 Year 3 $ 4,000 $12,000 Year 4
$ 2,000 $10,000 The required return on each project is 12 percent.
Which project should you accept and what is the best reason for
that decision? a. Project B; because it has the higher net present
value b. Project A; because it pays back...
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