Question
In: Finance
1. Calculate the net present value (NPV) for both projects, anddetermine which project should be...
Use the following information to answer the next three questions.
Consider the cash flows from two mutually exclusive projects:
| Year | Project A | Project B |
|---|---|---|
| 0 | -$420,000 | -$420,000 |
| 1 | $140,000 | $400,000 |
| 2 | $230,000 | $110,000 |
| 3 | $331,000 | $140,000 |
The appropriate discount rate is 8.5%.
1. Calculate the net present value (NPV) for both projects, and determine which project should be accepted based on NPV. Round both NPVs to the nearest dollar.
2. Calculate the internal rate of return (IRR) for both projects, and determine which project should be accepted based on IRR.
3. Calculate the net present value (NPV) for both projects using the crossover rate as your discount rate. Round both NPVs to the nearest dollar.
Solutions
Expert Solution
1. NPV of project A
=[-420,000+(140000/1.085)+(230000/(1.085)^2+331000/(1.085)^3]
= [-420,000+129032+195375+259142]
=163550
2. NPV of project B
=[-420,000+(400000/1.085)+110,000/(1.085)^2+140,000/(1.085)^3
= (-420000+368663+93440+109607)
= 151710
Project A should be accepted as it has higher net present value
jeff jeffy answered 2 years agoRelated Solutions
Calculate the net present value (NPV) for both projects usingthe crossover rate as your discount...
Use the following information to answer the next three questions. Consider the cash flows from two mutually exclusive projects: Cash FlowYearProject AProject B0-$420,000-$420,0001$140,000$400,0002$230,000$110,0003$331,000$140,000The appropriate discount rate is 8.5%.Calculate the net present value (NPV) for both projects using
the crossover rate as your discount rate. Round both NPVs to the
nearest dollar.
(a) Calculate the net present value (NPV) of a project which requires an initial investment of...
(a) Calculate the net present value (NPV) of a project which
requires an initial investment of $243,000 and it is expected to
generate a cash inflow of $58,000 each month for 12 months. Assume
that the salvage value of the project is zero. The target rate of
return is 12 % per annum.
(b) An initial investment of $8,720 thousand (i.e. × 1,000) on
plant and machinery is expected to generate cash inflows of $3,411
thousand, $4,070 thousand, $5,824 thousand...
1. What is the net present value (NPV) of the project? 2. Based on this NPV,...
1. What is the net present value (NPV) of the project?
2. Based on this NPV, should Hasbro undertake this project?
3. What is the internal rate of return (IRR) of this project?
You can find IRR by varying the discount rate in your table until
NPV is zero. That new discount rate will be the IRR.
Your grade will be based on the completeness of your cash flow
table and calculations as well as your answers above.
Monopoly expansion...
1. What is the net present value (NPV) of the project? 2. Based on this NPV,...
1. What is the net present value (NPV) of the project?
2. Based on this NPV, should Hasbro undertake this project?
3. What is the internal rate of return (IRR) of this project?
You can find IRR by varying the discount rate in your table until
NPV is zero. That new discount rate will be the IRR.
Your grade will be based on the completeness of your cash flow
table and calculations as well as your answers above.
Monopoly expansion...
Calculate the net present value (NPV) for a 1515-year project with an initial investment of $45...
Calculate the net present value
(NPV)
for a
1515-year
project with an initial investment of
$45 comma 00045,000
and a cash inflow of
$7 comma 0007,000
per year. Assume that the firm has an opportunity cost of
1515%.
Comment on the acceptability of the project.
The project's net present value is
$nothing.
(Round to the nearest cent.)
What are the payback and NPV (net present value) methods of evaluating capital projects? Which is...
What are the payback and NPV (net present value) methods of
evaluating capital projects? Which is considered the best
evaluation method, and why is one better than the other?
1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value...
1. Net present value (NPV)
Evaluating cash flows with the NPV method
The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.
Consider this case:
Suppose Cold Goose Metal Works Inc. is evaluating a proposed
capital budgeting project (project Alpha) that will require an
initial investment of $450,000. The project is expected to generate
the following net cash flows:
Year
Cash Flow
Year 1
$325,000
Year 2...
1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value...
1. Net present value (NPV)
Evaluating cash flows with the NPV method
The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.
Consider this case:
Suppose Happy Dog Soap Company is evaluating a proposed capital
budgeting project (project Beta) that will require an initial
investment of $3,000,000. The project is expected to generate the
following net cash flows:
Year
Cash Flow
Year 1
$300,000
Year 2
$475,000...
The NPV (net present value) of Plan Alpha is $ (130,539) The NPV (net present value)...
The
NPV (net present value) of Plan Alpha is $
(130,539)
The
NPV (net present value) of Plan Beta is $
233,001
The
IRR (internal rate of return) of Plan Alpha is $
19.36
%.
The
IRR (internal rate of return) of Plan Beta is $
21.25
%.
Which plan, if
any, should
the company pursue?
Based on the results above, the company
should pursue
Plan Beta
because
the NPV is
positive
and
the IRR is
greater than
the
company's...
Calculate the Net Present Value given two proposed projects of AIM Manufacturing Corp. Project # 1:...
Calculate the Net Present Value given
two proposed projects of AIM Manufacturing Corp.
Project # 1:
Initial Investment: $100,000
Cash Inflows:
Year 1: $45,000
Year 2: $48,000
Year 3: $55,000
Year 4: $75,000
Year 5: $150,000
Project # 2:
Initial Investment: $100,000
Cash Inflows:
Year 1: $65,000
Year 2: $45,000
Year 3: $25,000
Year 4: $10,000
Year 5: $1,000
What are the Payback Period for each
project using the NPV Method? Which project would you select in you
were looking...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- What are the two reasons that limit the ability of correlational studies to provide information on...
- Suppose that 20 monthly payments of $100 each are followed by 30 monthly payments of $200...
- D. Explain what it means for recommendations to be specific and actionable. E. Discuss how charts...
- Capital Toys’ management is considering eliminating product A, which has been showing a loss for several...
- Computer Networks IT 210 Please Use your own words . sorry No handwriting no copy paste...
- The Coronavirus will obviously impact the economy of big organizations like FIFA or the NBA but...
- Question: what is the difference between rights of assertion and observation assertion. Include which financial statements...
ADVERTISEMENT