Question
In: Finance
All techniques with NPV profile Mutually exclusive projects Projects A and B, of equal risk, are...
All techniques with NPV profile Mutually exclusive projects Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 16%. The cash flows for each project are shown in the following table:
Initial investment $130,000
$100,000
Year Cash inflows
1 $30,000 $30,000
2 $35,000 $30,000
3 $40,000 $30,000
4 $45,000 $30,000
5 $50,000 $30,000
a. Calculate each project's payback
period.
b. Calculate the net present value (NPV) for each project.
c. Calculate the internal rate of return (IRR) for each project.
d. Indicate which project you would recommend.
Solutions
Expert Solution
No project should be chosen as NPV is negative for both.
jeff jeffy answered 1 year agoRelated Solutions
Q1. (CLO3) All techniques with NPV profile—Mutually exclusive projects Fitch Industries is in the process of...
Q1. (CLO3) All techniques with NPV profile—Mutually exclusive
projects Fitch Industries is in the process of choosing the better
of two equal-risk, mutually exclusive capital expenditure
projects—M and N. The relevant cash flows for each project are
shown in the following table. The firm’s cost of capital is
14%.
Project M
Project N
Initial investment
$28,500
$27,000
1
$10,000
$11,000
2
$10,000
$10,000
3
$10,000
9,000
4
$10,000
8,000
a. Calculate each project’s payback period.
b. Calculate the net present...
Projects A and B, both of equal risk, are mutually exclusive alternatives for expanding Corporation’s capacity....
Projects A and B, both of equal risk,
are mutually exclusive alternatives for expanding
Corporation’s capacity. The firm’s cost of capital is 13%. The cash
flows for each project are shown in the following table.
Project
A
Project B
Year
0:
($80,000)
Year
0:
($80,000)
Year
1:
$15,000
Year
1:
$15,000
Year
2:
$20,000
Year
2:
$15,000
Year
3:
$25,000
Year
3:
$15,000
Year
4:
$30,000
Year
4:
$35,000
Year
5:
$30,000 ...
Projects A and B, both of equal risk, are mutually exclusive alternatives for expanding Corporation’s capacity....
Projects A and B, both of equal risk, are mutually exclusive
alternatives for expanding Corporation’s capacity. The firm’s
cost of capital is 13%. The cash flows for each project are shown
in the following table.
Project
A Project
B
Year
0:
($80,000)
Year
0:
($80,000)
Year
1:
$15,000
Year
1:
$15,000
Year
2:
$20,000
Year
2:
$15,000
Year
3:
$25,000
Year
3:
$15,000
Year
4:
$30,000
Year
4:
$35,000
Year
5:
$30,000
Year
5: ...
6. Understanding the NPV profile If projects are mutually exclusive, only one project can be chosen....
6. Understanding the NPV profile
If projects are mutually exclusive, only one project can be
chosen. The internal rate of return (IRR) and the net present value
(NPV) methods will not always choose the same project. If the
crossover rate on the NPV profile is below the horizontal axis, the
methods will agree.
Projects W and X are mutually exclusive projects. Their cash
flows and NPV profiles are shown as follows.
Year
Project W
Project X
0
–$1,000
–$1,500
1...
The following two projects of equal risk are mutually exclusive alternatives for expanding the firm’s capacity....
The following two projects of equal risk are mutually exclusive
alternatives for expanding the firm’s capacity. The firm’s cost of
capital is 15%. The cash flows for each project are given in the
following table.
Year Project A Project B
0 210,000 20,000
1 15,000 12,000
2 30,000 10,500
3 32,000 9,500
4 425,000 8,200
Required:
a) Calculate each project’s payback period. Using the payback
period criterion which project is preferable? b)
Calculate the net present value for each project....
The following two projects of equal risk are mutually exclusive alternatives for expanding the firm’s capacity....
The
following two projects of equal risk are mutually exclusive
alternatives for expanding the firm’s capacity. The firm’s cost of
capital is 15%. The cash flows for each project are given in the
following table.
PROJECT A
PROJECT B
Initial investment
210,000
20,000
Year
Net cash inflows
Net cash inflows
1
15,000
12,000
2
30,000
10,500
3
32,000
9,500
4
425,000
8,200
You have two mutually exclusive projects A and B and have constructed the NPV profiles for...
You have two mutually exclusive projects A and B and
have constructed the NPV profiles for these projects. You find that
the IRR of A is greater than the IRR of B but at an 8% cost of
capital using the NPV method you would prefer project B. What is
causing the NPV profile pattern that you are observing? Which
project do you prefer and why? Essentially you are preferring one
method over another so you need to discuss the...
(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive...
(Mutually exclusive projects and NPV) You have been assigned
the task of evaluating two mutually exclusive projects with the
following projected cash flows: If the appropriate discount rate
on these projects is 11 percent, which would be chosen and why?
What is the NPV of project A? $ nothing (Round to the nearest
cent.) What is the NPV of project B? $ (Round to the nearest
cent.) Which project would be chosen and why? (Select the best
choice.) A....
(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive...
(Mutually exclusive projects and NPV)
You have been assigned the task of evaluating two mutually
exclusive projects with the following projected cash flows:
YEAR
PROJECT A
CASH FLOW
PROJECT B
CASH FLOW
0
−$110,000
−$110,000
1
30,000
0
2
30,000
0
3
30,000
0
4
30,000
0
5
30,000
220,000
(Click
on the icon located on the top-right corner of the data table
above in order to copy its contents into a
spreadsheet.)
If the appropriate discount rate on these...
(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive...
(Mutually exclusive projects and NPV) You have been assigned
the task of evaluating two mutually exclusive projects with the
following projected cash flows:
YEAR PROJECT A CASH FLOW PROJECT B CASH
FLOW
0 -105,000 -105,000
1 40,000 0
2 40,000 0
3 40,000 0
4 40,000 0
5 40,000 240,000
If the appropriate discount rate on these projects is 8
percent, which would be chosen and why? What is the NPV of
project A? What is the NPV of project...
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