Question
In: Finance
You are a project manager evaluating the following three projects Year Project A &
- You are a project manager evaluating the following three projects
Year Project A Project B Project C
0 -$150,000 -$300,000 -$150,000
1 $110,000 $200,000 $120,000
2 $110,000 $200,000 $90,000
The relevant discount rate ( r ) is 12% a year
Calculate the PI for each of the three projects.
- Calculate the NPV for each of the three projects.
- If the projects were independent, and according to the PI rule, which project(s) would you choose?
- If the projects were mutually exclusive, what project(s) would you choose according to the PI rule? Justify your answer, by using the incremental argument or otherwise. (please full explain)
- If the budget of the company is $450,000, and the projects are indivisible, which project(s) would you choose?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You are evaluating two projects with the following cash flows: Year Project X Project Y 0...
You are evaluating two projects with the following cash
flows:
Year
Project X
Project Y
0
−$552,600
−$521,000
1
217,700
207,400
2
227,600
217,200
3
234,800
225,100
4
194,500
185,900
What is the crossover rate for these two projects?
Matterhorn Mountain Gear is evaluating two projects with the following cash flows: year project x project...
Matterhorn Mountain Gear is evaluating two projects with the
following cash flows:
year
project x
project y
0
-319,400
-299,050
1
146,100
137,300
2
163,600
154,500
3
128,700
120,250
What interest rate will make the NPV for the projects equal?
a)14.22%
b)18.31%
c)12.64%
d).26%
e)18.05%
A project manager is evaluating a project and initially forecasts that the project will lasts for...
A project manager is evaluating a project and initially
forecasts that the project will lasts for four years and has its
annual marketing and support costs of $1,000,000 and its annual
revenue of $10,000,000. The project pays a 40% tax rate on its
pre-tax income and its cost of capital is 15%. While analysing a
situation that competitors can run their big promotion programs
during the project’s life, the manager proposes one solution to the
situation by increasing the marketing...
A project manager is evaluating a project and initially forecasts that the project will lasts for...
A project manager is evaluating a project and initially
forecasts that the project will lasts for four years and has its
annual marketing and support costs of $1,000,000 and its annual
revenue of $10,000,000. The project pays a 40% tax rate on its
pre-tax income and its cost of capital is 15%. While analysing a
situation that competitors can run their big promotion programs
during the project’s life, the manager proposes one solution to the
situation by increasing the marketing...
You are considering the following two mutually exclusive projects. YEAR PROJECT (A) PROJECT (B) 0&
You are considering the following two mutually exclusive
projects.
YEAR
PROJECT
(A) PROJECT
(B)
0
-$35,000
-$35,000
1
22,000
13,000
2
20,000
21,000
3
13,000
22,000
What is the internal rate of return of PROJECT A?
You are considering the following two mutually exclusive projects. YEAR PROJECT (A) PROJECT (B) 0&
You are considering the following two mutually exclusive
projects.
YEAR
PROJECT
(A) PROJECT
(B)
0
-$35,000
-$35,000
1
22,000
13,000
2
20,000
21,000
3
13,000
22,000
What is the crossover point?
Your manager has tasked you with evaluating two alternative projects for the company’s expansion: The first...
Your manager has tasked you with evaluating two alternative
projects for the company’s expansion:
The first option costs $200,000 with the expected cash inflow to
the firm estimated at $60,000 per year after depreciation and tax.
The life of this project is 7 years.
The second option costs $350,000 and has a life span of 10
years. The cash inflow to the firm from this option is estimated to
be $80,000 per annum, again after depreciation and tax.
This company...
Your manager has tasked you with evaluating two alternative projects for the company’s expansion: The first...
Your manager has tasked you with evaluating two alternative
projects for the company’s expansion:
The first option costs $200,000 with the expected cash inflow to
the firm estimated at $60,000 per year after depreciation and tax.
The life of this project is 7 years.
The second option costs $350,000 and has a life span of 10
years. The cash inflow to the firm from this option is estimated to
be $80,000 per annum, again after depreciation and tax.
This company...
Your manager has tasked you with evaluating two alternative projects for the company’s expansion: The first...
Your manager has tasked you with evaluating two alternative
projects for the company’s expansion:
The first option costs $200,000 with the expected cash inflow to
the firm estimated at $60,000 per year after depreciation and tax.
The life of this project is 7 years.
The second option costs $350,000 and has a life span of 10
years. The cash inflow to the firm from this option is estimated to
be $80,000 per annum, again after depreciation and tax.
This company...
The following are the cash flows of two projects: Year Project A Project B...
The following are the cash flows of two projects:
Year Project A Project B
0 -250 -250
1 130 150
2 130 150
3 130 150
4 130
If the opportunity cost is 10%, what is the profitability index
for each project?
Project Profitability Index
A
B
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