Question
In: Finance
1. A firm is considering four possible independent project options. Project A has a present value...
1. A firm is considering four possible independent project options. Project A has a present value cost of $9,000 and yields benefits of $4,280 per year for 4 years. Project B has a present value cost of $10,000 and yields benefits of $4,560 per year for 3 years. Project C has a present value cost of $8,000 and yields benefits of $3,500 per year for 3 years. Project D has a present value cost of $7,500 and yields a benefit of $5,500 per year over 3 years.
Assuming a discount rate of 10%, estimate the following:
a) Net Present Value (NPV) of the four projects
b) Discounted Benefit-Cost Ratio for the four projects
c) Net discounted Benefit-Cost Ratio for the four projects
d) Rank projects using the NPV criteria
e) Rank projects using the Benefit-cost ratio
f) Explain why the two criteria do not give the same ranking
Solutions
jeff jeffy answered 2 years agoRelated Solutions
1. A firm is considering four possible independent project options. Project A has a present value...
1. A firm is
considering four possible independent project options. Project A
has a present value cost of $9,000 and yields
benefits of $4,280 per year for 4 years. Project B has a
present value cost of $10,000 and yields benefits
of $4,560 per year for 3 years. Project C has a present
value cost of $8,000 and yields benefits of $3,500 per
year for 3 years. Project D has a present value cost of
$7,500 and yields a benefit...
1. a) What is the net present value of a project that has upfront costs of...
1. a) What is the net present value of a project that has
upfront costs of $5 million and pays end of the year cash flows of
$1 million in one year, $2 million in two years, and $3 million in
three years if the annual discount rate for the project is 3
percent? Show how much money you would have at the end of three
years if you bought the project and what you would have instead if
you...
1. If the net present value of project A is +$70, and of project B is...
1.
If the net present value of project A is +$70, and of project B
is +$50, then the net present value of the combined project is:
Group of answer choices
+$80
+$140
None of the above
+$60
+$120
+$20
2.
Are there problems with using the payback rule? The following
are disadvantages of using the payback rule
except:
Group of answer choices
The payback rule does not have the value additive property
The payback rule does not use the...
Net Present Value—Unequal Lives Daisy's Creamery Inc. is considering one of two investment options. Option 1...
Net Present Value—Unequal Lives Daisy's Creamery Inc. is
considering one of two investment options. Option 1 is a $75,000
investment in new blending equipment that is expected to produce
equal annual cash flows of $19,000 for each of seven years. Option
2 is a $90,000 investment in a new computer system that is expected
to produce equal annual cash flows of $27,000 for each of five
years. The residual value of the blending equipment at the end of
the fifth...
Net Present Value-Unequal Lives Daisy’s Creamery Inc. is considering one of two investment options. Option 1...
Net Present Value-Unequal Lives
Daisy’s Creamery Inc. is considering one of two investment
options. Option 1 is a $69,000 investment in new blending equipment
that is expected to produce equal annual cash flows of $21,000 for
each of seven years. Option 2 is a $79,000 investment in a new
computer system that is expected to produce equal annual cash flows
of $27,000 for each of five years. The residual value of the
blending equipment at the end of the fifth...
NET PRESENT VALUE Simon company is considering two investments, Project A an Project B. They require...
NET PRESENT VALUE
Simon company is considering two investments, Project A an
Project B.
They require a 9% return from investments.
The initial investment for project A is $250,000.
The initial investment for project B is $525,000.
The expected cash flows from each project are below.
a. Compute the NPV (Net Present Value) for each project.
b. Compute the profitability index for for each project.
c. Which project do you recommend?
Year Project A Project B
1 115,000 170,000
2...
You are considering a two-year project with a present value of revenues of $4 million. The...
You are considering a two-year project with a present value of
revenues of $4 million. The project has a present value of
operating costs of $2.5 million and requires an initial capital
expenditure of $550,000, which can be depreciated in a straight
line over three years. However, you expect to sell this asset after
two years for $400,000. Finally, the project requires a $400,000
working capital investment incurred immediately and recovered at
the end of the second year. What is...
It is not possible to value a firm that has a supernormal(variable) growth rate for...
It is not possible to value a firm that has a supernormal
(variable) growth rate for the first few years of its life. True
False
3. Abandonment options Acme Co. is considering a four-year project that will require an initial investment...
3. Abandonment options
Acme Co. is considering a four-year project that will require an
initial investment of $15,000. The base-case cash flows for this
project are projected to be $15,000 per year. The best-case cash
flows are projected to be $22,000 per year, and the worst-case cash
flows are projected to be –$1,500 per year. The company’s analysts
have estimated that there is a 50% probability that the project
will generate the base-case cash flows. The analysts also think
that...
8. Abandonment options Galbraith Co. is considering a four-year project that will require an initial investment...
8. Abandonment options
Galbraith Co. is considering a four-year project that will
require an initial investment of $15,000. The base-case cash flows
for this project are projected to be $15,000 per year. The
best-case cash flows are projected to be $22,000 per year, and the
worst-case cash flows are projected to be –$1,500 per year. The
company’s analysts have estimated that there is a 50% probability
that the project will generate the base-case cash flows. The
analysts also think that...
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