Question
In: Finance
9.Consider the following two mutually exclusive projects: Annual cash flows: Year 0 $(364,000) $(52,000) Year 1...
9.Consider the following two mutually exclusive projects:
Annual
cash flows:
Year
0 $(364,000) $(52,000)
Year
1 $ 46,000 $ 25,000
Year
2 $ 68,000 $ 22,000
Year
3 $ 68,000 $ 21,500
Year
4 $ 458,000 $ 17,500
Whichever project you choose, if any, you require a 15 percent
return on your investment.
a. If
you apply the payback criterion, which investment will you choose?
Why?
b. If
you apply the discounted payback criterion, which investment will
you choose? Why?
c. If
you apply the NPV criterion, which investment will you choose?
Why?
d. If
you apply the IRR criterion, which investment will you choose?
Why?
e. If
you apply the profitability index criterion, which investment will
you choose? Why?
f.
Based on your answers in (a) through (e), which project will you
finally choose? Why?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0...
Consider the following cash flows on two mutually exclusive
projects:
Year
Project A
Project B
0
–$
68,000
–$
83,000
1
48,000
47,000
2
43,000
56,000
3
38,000
59,000
The cash flows of Project A are expressed in real terms, whereas
those of Project B are expressed in nominal terms. The appropriate
nominal discount rate is 11 percent and the inflation rate is 5
percent. Calculate the NPV for each project. (Do not round
intermediate calculations and round your answers...
Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0...
Consider the following cash flows on two mutually exclusive
projects:
Year
Project A
Project B
0
67000
82000
1
47000
46000
2
42000
55000
3
37000
58000
The cash flows of Project A are expressed in real terms while
those of Project B are expressed in nominal terms. The appropriate
nominal discount rate is 10 percent and the inflation rate is 2
percent.
Calculate the NPV for each project. (Do not round
intermediate calculations and round your answers to...
Consider the following two mutually exclusive projects and their Cash Flows ($)
Consider the following two mutually exclusive projects and their
Cash Flows ($)Project
C0 C1 C2
C3K
–$100
+$45 +$45 +$60 W
–$150
+$45 +$45 +$125Which statement is correct based on the above information about
Projects K and W?a. If the discount rate is 7.5%, accept project W because the
cross-over rate is 9%b. Accept project K, because at a 9% discount rate K and W have
the same net present value.c. If the discount rate is 9.5%, reject project K, because the...
Consider the cash flows from two mutually exclusive projects
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$140,000The appropriate discount rate is 8.5%.Calculate the internal rate of return (IRR) for both projects, and determine which project should be accepted based on IRR.
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$...
Consider the following two mutually exclusive
projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$
364,000
–$
52,000
1
46,000
25,000
2
68,000
22,000
3
68,000
21,500
4
458,000
17,500
Whichever project you choose, if any, you require a return of 11
percent on your investment.
a-1. What is the payback period for each project?
(Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
a-2. If you apply the payback criterion, which...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$199,124
–$15,993
1
25,800
5,691
2
51,000
8,855
3
54,000
13,391
4
416,000
8,695
Whichever project you choose, if any, you require a 6 percent
return on your investment.
a. What is the payback period for Project
A?
b. What is the payback period for Project
B?
c. What is the discounted...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two mutually exclusive projects:
Year
Cash Flow
(A)
Cash Flow
(B)
0
–$
360,000
–$
45,000
1
35,000
23,000
2
55,000
21,000
3
55,000
18,500
4
430,000
13,600
Whichever project you choose, if any, you require a 14 percent
return on your investment.
a-1
What is the payback period for each project? (Do not
round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
Payback period
Project A
years
Project...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$260,730
–$15,011
1
27,800
4,942
2
56,000
8,023
3
55,000
13,040
4
426,000
9,138
Whichever project you choose, if any, you require a 6 percent
return on your investment.
a. What is the payback period for Project
A?
b. What is the payback period for Project
B?
c. What is the discounted...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two
mutually exclusive projects:
Year
Cash Flow
(A)
Cash Flow
(B)
0
–$251,835
–$15,247
1
25,100
4,828
2
55,000
8,358
3
50,000
13,472
4
385,000
8,102
Whichever project you choose, if
any, you require a 6 percent return on your investment.
a.What is the discounted payback period for Project A?
b.What
is the discounted payback period for Project B?
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two
mutually exclusive projects:
Year
Cash Flow
(A)
Cash Flow
(B)
0
–$251,835
–$15,247
1
25,100
4,828
2
55,000
8,358
3
50,000
13,472
4
385,000
8,102
Whichever project you choose, if
any, you require a 6 percent return on your investment.
a.What is the discounted payback period for Project A?
b.What
is the discounted payback period for Project B?
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