Question
In: Finance
Your company is evaluation 4 independent projects and is subject to capital rationing, detailed as follows:...
Your company is evaluation 4 independent projects and is subject to capital rationing, detailed as follows:
Project Initial Outlay IRR NPV
1 2 million 18% 2,500,000
2 1 million 15% 950,000
3 1 million 10% 600,000
4 3 million 9% 2,000,000
If you must select projects subject to a budget constraint of 3 million dollars, which set of projects should be accepted so as to maximize firm value?
|
1 and 2 |
||
|
1 only |
||
|
1, 2 and 3 |
||
|
1 and 4 |
||
|
2, 3 and 4 |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
What is capital rationing? How capital budgeting projects are chosen when capital rationing exist? Explain.
What is capital rationing? How capital budgeting projects are
chosen when capital rationing exist? Explain.
Your firm is subject to capital rationing and can only invest $60,000. You've estimated the following...
Your firm is subject
to capital rationing and can only invest $60,000. You've estimated
the following cash flows (in $) for two projects: just need answers
don't need formula and steps
Year
Project A
Project B
0
-55,000
-55,000
1
10,000
30,000
2
20,000
20,000
3
30,000
10,000
4
40,000
0
The required return
for both projects is 8%.
A:What is the payback
period for project A? 2 Decimals
B:What is the payback
period for project B? 2 decimals
C:Which...
Your firm is subject to capital rationing and can only invest $60,000. You've estimated the following...
Your firm is subject
to capital rationing and can only invest $60,000. You've estimated
the following cash flows (in $) for two projects:
Year
Project A
Project B
0
-54,000
-54,000
1
10,000
30,000
2
20,000
20,000
3
30,000
10,000
4
40,000
0
The required return
for both projects is 8%.
What is the payback
period for project A?
What is the payback
period for project B?
Which project seems
better according to the payback method?
Project A or Project...
Your company is evaluating the following 9 independent indivisible projects. The company’s capital budgeting for the...
Your company is evaluating the following 9 independent
indivisible projects. The company’s capital budgeting for the year
is limited to a maximum of $20,000.
Use solver with simplex linear programing method to find the set
of projects that should be included in the capital budget. (Mark
all that applies)
Project
NPV
cost
A
500.00
2,000.00
B
2,000.00
7,000.00
C
1,800.00
3,000.00
D
3,000.00
5,000.00
E
800.00
2,200.00
F
1,700.00
5,000.00
G
1,800.00
4,000.00
H
3,500.00
5,800.00
I
2,200.00
4,800.00
If there is no capital rationing problem, which of the following mutually exclusive projects should be...
If there is no capital rationing problem, which of the following
mutually exclusive projects should be accepted?
Project A: NPV = $8,000; NINV = $55,000
Project B: NPV = $11,000; NINV = $110,500
Question options:
Neither A nor B
A
B
Both A and B
D&D, Inc., plans to build a new toll way. The cost (NINV) of
the project is expected to be $2.1 billion. Net cash inflows are
expected to equal $351 million per year. How many years...
Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows....
Iggy Company is considering three capital expenditure projects.
Relevant data for the projects are as follows.
Project
Investment
Annual
Income
Life of
Project
22A
$240,600
$17,220
6 years
23A
271,400
21,000
9 years
24A
284,100
15,700
7 years
Annual income is constant over the life of the project. Each
project is expected to have zero salvage value at the end of the
project. Iggy Company uses the straight-line method of
depreciation.
Click here to view the factor table.
(a)
Determine...
Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows....
Iggy Company is considering three capital expenditure projects.
Relevant data for the projects are as follows.
Project
Investment
Annual
Income
Life of
Project
22A
$240,600
$17,220
6 years
23A
271,400
21,000
9 years
24A
284,100
15,700
7 years
Annual income is constant over the life of the project. Each
project is expected to have zero salvage value at the end of the
project. Iggy Company uses the straight-line method of
depreciation.
Click here to view the factor table.
(a)
Determine...
Marigold Company is considering three capital expenditure projects. Relevant data for the projects are as follows....
Marigold Company is considering three capital expenditure
projects. Relevant data for the projects are as follows.
Project
Investment
Annual
Income
Life of
Project
22A
$243,300
$16,860
6 years
23A
274,200
20,730
9 years
24A
280,500
15,700
7 years
Annual income is constant over the life of the project. Each
project is expected to have zero salvage value at the end of the
project. Marigold Company uses the straight-line method of
depreciation.
Click here to view PV table.
(a)
Determine the...
Iggy Company is considering three capital expenditure projects. Relevant data for the projects are as follows....
Iggy Company is considering three capital expenditure projects.
Relevant data for the projects are as follows.
Project
Investment
Annual
Income
Life of
Project
22A
$243,000
$16,720
6 years
23A
270,900
20,620
9 years
24A
283,300
15,700
7 years
Annual income is constant over the life of the project. Each
project is expected to have zero salvage value at the end of the
project. Iggy Company uses the straight-line method of
depreciation.
Click here to view PV table.
(a)
Determine the...
Ranking is an important consideration when projects are mutually exclusive or when capital rationing is necessary....
Ranking is an important consideration when projects
are mutually exclusive or when capital rationing is necessary. When
projects are mutually exclusive, ranking enables the firm to
determine which project is best from a financial standpoint. When
capital rationing is necessary, ranking projects will provide a
logical starting point for determining what group of projects to
accept. However, there are instances wherein Financial Managers are
faced with conflicting rankings using NPV and IRR. It is difficult
to choose one approach over...
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