Question
In: Finance
We have the following two projects: Year Project X Project Y 0 -29,500....... -45,000 1 9,000...
We have the following two projects:
Year Project X Project Y
0 -29,500....... -45,000
1 9,000 ...............0
2 9,000............... 0
3 9,000 .............. 0
4 9,000 ...............0
5 9,000........... $84,000
a) Show each project on the time-line.
b) What is payback period? What are payback period values for projects X & Y? How do you interpret them? Given a threshold of 3 years which project or projects should you choose if they are independent? What if they are mutually exclusive?
c) The cost of capital is 10%. What are these projects' NPVs? Which project(s) should be chosen based on NPV if they are independent? What if they are mutually exclusive?
d) What are these projects' approximate IRRs? Which project(s) should be chosen based on IRR if they are independent? What if they are mutually exclusive?
e) Draw the NPV profiles for these two projects? Explain the use NPV-profiles. Do you see any conflict of choice between NPV and IRR between these two projects? How do you resolve the conflict if there is one, in other words, do you use NPV or IRR and why? What could be the reasons or conditions that may result in conflict to arise between NPV and IRR.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You are evaluating two projects with the following cash flows: Year Project X Project Y 0...
You are evaluating two projects with the following cash
flows:
Year
Project X
Project Y
0
−$552,600
−$521,000
1
217,700
207,400
2
227,600
217,200
3
234,800
225,100
4
194,500
185,900
What is the crossover rate for these two projects?
Consider the following two mutually exclusive projects X and Y: X Y Year 0 -$5,500 -$4,500...
Consider the following two mutually exclusive projects X and
Y:
X
Y
Year 0
-$5,500
-$4,500
Year 1
$3,000
$2,800
Year 2
$2,000
$2,000
Year 3
$2,000
$1,000
Year 4
$1,000
$1,000
What is the crossover rate for these two projects?
Sketch the NPV profiles for X and Y (point out the IRR of each
project and the crossover rate in the NPV profiles).
The required return is 10%. Which project should be
chosen?
Both projects required rate of return is 10%. Year Project X Project Y 0 -100 -100...
Both projects required rate of return is 10%. Year Project X
Project Y 0 -100 -100 1 50 20 2 30 40 3 30 40 4 30 50 5 -10 -9 A)
Calculate the NPV both projects. If they are mutually exclusive,
which project would you pick? B) Calculate the MIRR of both
projects using the combo method and determine which project you
would pick based solely on MIRR. C) Calculate the cross-over
rate
The following are the cash flows of two projects: Year Project A Project B 0 ?$...
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.)
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
$
(330)
$
(330)
1
160
230
2
160
230
3
160
230
4
160
If the opportunity cost of capital is 12%, what is the
profitability index for each project? (Do not round
intermediate calculations. Round your answers to 4 decimal
places.)
Project Profitability Index:
A
B
The following are the cash flows of two projects: Year Project A Project B 0 ?$...
The following are the cash flows of two projects: Year Project A
Project B 0 ?$ 220 ?$ 220 1 100 120 2 100 120 3 100 120 4 100 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.)
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
$
(260
)
$
(260
)
1
140
160
2
140
160
3
140
160
4
140
a. Calculate the NPV for both projects if the
opportunity cost of capital is 16%. (Do not round
intermediate calculations. Round your answers to 2 decimal
places.)
Project A
Project B
b.
Suppose that you can choose only one of these projects. Which would
you choose?
Project A...
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
$
(330
)
$
(330
)
1
160
230
2
160
230
3
160
230
4
160
a. If the opportunity cost of capital is 12%,
calculate the NPV for both projects. (Do
not round intermediate calculations. Round your answers to 2
decimal places.)
b. Which of these projects is worth
pursuing?
****NOTE**** You are finding the NPV, NOT the Profitability
index!
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