Question
In: Finance
Shell Camping Gear is considering two projects. Each requires an initial investment of R1 000 000....
Shell Camping Gear is considering two projects. Each requires an initial investment of
R1 000 000. John Shell, CEO of the company, has set a maximum payback period of
four years. Information regarding the forecasted net cash flows from each product is
presented below:
Project X Project Y
R R
Year 1 100 000 400 000
Year 2 200 000 300 000
Year 3 300 000 200 000
Year 4 400 000 200 000
Year 5 500 000 200 000
Shell Camping Gear’s discount rate (WACC) is 14% and the corporate tax rate is 28%.
REQUIRED:
5.3 Evaluate the two (2) projects Shell Camping Gear is considering and
recommend, with justification, which project Shell Camping Gear should accept.
Your answer should include:
a) The payback period (2)
b) The NPV (6)
c) The IRR (2)
d) Recommendation (5)
(SHOW ALL WORKINGS)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Your firm is considering two investment projects, each of which requires an upfront expenditure of $48...
Your firm is considering two investment projects, each of which
requires an upfront expenditure of $48 million. You estimate that
the cost of capital is 10% and that the investments will produce
the following after-tax cash flows (in millions of dollars):
Year
COVID Vaccine
Face Mask Machine
1
5
23
2
10
20
3
15
10
4
20
8
5
25
6
a. What is the IRR for the Face Mask Machine project? Do not
write ‘%’ in your answer....
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an...
Payback, NPV, and MIRR
Your division is considering two investment projects, each of
which requires an up-front expenditure of $24 million. You estimate
that the cost of capital is 9% and that the investments will
produce the following after-tax cash flows (in millions of
dollars):
Year
Project A
Project B
1
5
20
2
10
10
3
15
8
4
20
6
What is the regular payback period for each of the projects?
Round your answers to two decimal places....
Payback, NPV, and MIRR Your division is considering two investment projects, each of which requires an...
Payback, NPV, and MIRR
Your division is considering two investment projects, each of
which requires an up-front expenditure of $22 million. You estimate
that the cost of capital is 10% and that the investments will
produce the following after-tax cash flows (in millions of
dollars):
Year
Project A
Project B
1
5
20
2
10
10
3
15
8
4
20
6
What is the regular payback period for each of the projects?
Round your answers to two decimal places....
ABC is considering two investment alternatives. Alternative A requires an initial investment of $10,000; it will...
ABC is considering two investment alternatives. Alternative A
requires an initial investment
of $10,000; it will yield incomes of $3000, $3500, $4000, and $4500
over its 4-year life.
Alternative B requires an initial investment of $12,000; it is
anticipated that the revenue
received each year will increase at a rate of 10%/year (each year’s
revenue is 10% higher than
that of the preceding year).
Based on an interest rate of 12% compounded annually, what must be
the revenue at the...
ABC is considering two investment alternatives. Alternative A requires an initial investment of $10,000; it will...
ABC is considering two investment alternatives. Alternative A
requires an initial investment
of $10,000; it will yield incomes of $3000, $3500, $4000, and $4500
over its 4-year life.
Alternative B requires an initial investment of $12,000; it is
anticipated that the revenue
received each year will increase at a rate of 10%/year (each year’s
revenue is 10% higher than
that of the preceding year).
Based on an interest rate of 14% compounded annually, what must be
the revenue at the...
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...
Your division is considering two investment projects, each of which requires an up-front expenditure of $17...
Your division is considering two investment projects, each of
which requires an up-front expenditure of $17 million. You estimate
that the investments will produce the following net cash flows:
Year
Project A
Project B
1
$ 5,000,000
$20,000,000
2
10,000,000
10,000,000
3
20,000,000
6,000,000
What are the two projects' net present values, assuming the cost
of capital is 5%, 10% and 15%?
What are the two projects' IRRs at these same costs of
capital?
Your division is considering two investment projects, each of which requires an up-front expenditure of $17...
Your division is considering two investment projects, each of
which requires an up-front expenditure of $17 million. You estimate
that the investments will produce the following net cash flows:
Year
Project A
Project B
1
$ 5,000,000
$20,000,000
2
10,000,000
10,000,000
3
20,000,000
6,000,000
What are the two projects' net present values, assuming the cost
of capital is 5%? Do not round intermediate calculations. Round
your answers to the nearest dollar.
Project A: $
Project B: $
What are the two...
NPV Your division is considering two investment projects, each of which requires an up-front expenditure of...
NPV
Your division is considering two investment projects, each of
which requires an up-front expenditure of $15 million. You estimate
that the investments will produce the following net cash flows:
Year
Project A
Project B
1
$ 5,000,000
$20,000,000
2
10,000,000
10,000,000
3
20,000,000
6,000,000
What are the two projects' net present values, assuming the cost
of capital is 5%? Do not round intermediate calculations. Round
your answers to the nearest dollar.
Project A: $
Project B: $
What are the...
Your division is considering two investment projects, each of which requires an up-front expenditure of $24...
Your division is considering two investment projects, each of
which requires an up-front expenditure of $24 million. You estimate
that the cost of capital is 11% and that the investments will
produce the following after-tax cash flows (in millions of
dollars):
Year Project A Project B
1 5 20
2 10 10
3 15 8
4 20 6
What is the regular payback period for each of the projects?
Round your answers to two decimal places.
Project A
Project B...
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