In: Finance

For the following projects, compute the net present value, internal rate of return, and the profitability index. Assume the required rate of return is 17% compounded annually.

Project |
Initial Investment |
Cashflow at time 1 |
Cashflow at time 2 |

A |
116,000 |
69,000 |
89,000 |

B |
1,530 |
4,100 |
100 |

C |
260,000 |
134,000 |
160,000 |

D |
910 |
350 |
3,400 |

Assume no capital constrain exists and that the projects are not mutually exclusive.

What is the net present value of Project A?

What is the internal rate of return of project B?

What is the profitability index of project C?

According to the net present value rule, which of the projects should be accepted? ( you can invest in any one project, any two projects, three projects or all four projects)

According to the internal rate of return rule, which of the projects should be accepted?

According to the profitability-index rule, which of the following projects should be accepted?

For this part only, assume no capital constraint exist but that project A,B,C, and D are mutually exclusive. Only one of these projects can be undertaken. Which project should the company undertake in order to make its stockholders as well as as possible?

Accounting Rate of Return Payback Period Net Present Value
Internal Rate of Return Profitability Index 1) Select three of the
analytical tools and provide supportive statements explaining how
each can be used to screen and/or rank future available projects.
2) Select one of the analytical tools listed and provide supportive
statements explaining why you believe it provides the most
important information in the decision process.

Internal rate of return and net present value are related in
that:
Internal rate of return formed the basis for the eventual
development of the net present value theory.
Internal rate of return finds a discount rate that produces a
net present value of zero.
Net present value formed the basis for the eventual development
of the internal rate of return theory.
Net present value can only be used to evaluate irregular cash
flows, whereas internal rate of return can...

Calculate the payback period, net present value, profitability
index, and internal rate of return for Project A. Assume a discount
rate of 20%. Should the firm accept or reject Project A? Explain.
If the firm must choose between Project A and Project B, which is
the better choice? Explain. Under what circumstances should the
modified internal rate of return be used instead of the standard
internal rate of return?
Project A
Project B
Year
Cash Flow
Year
Cash Flow
0...

Payback period, net present value, profitability index, and
internal rate of return calculations) You are considering a
project with an initial cash outlay of
$73 comma 00073,000
and expected cash flows of
$21 comma 17021,170
at the end of each year for six years. The discount rate for
this project is
9.99.9
percent.
a. What are the project's payback and discounted payback
periods?
b. What is the project's NPV?
c. What is the project's PI?
d. What is the project's...

PAYBACK, ACCOUNTING RATE OF RETURN, PRESENT VALUE, NET
PRESENT VALUE, INTERNAL RATE OF RETURN
All four parts are independent of all other parts. Assume that
all cash flows are after-tax cash flows:
a. Randy Willis is
considering investing in one of the following two projects. Either
project will require an investment of $10,000. The expected cash
flows for the two projects follow. Assume that each project is
depreciable.
Year Project
A Project B
1
$ 3,000
$3,000
2 ...

What is the relationship among present value, net
present value, and internal rate of return? Is there a consistent
relationship at all possible values for these
measures?

Question
Calculate Pay Back Period, Net Present Value, Internal Rate of
Return and Profitability Index (Benefit Cost Ration) of each of
these projects and decide and provide your analysis which project
is better. Critically evaluate your decision.
On January 11, 2005, the finance committee of Harding Plastic
Molding Company (HPMC) met to consider eight capital budgeting
projects. Present at the meeting were Robert L. Harding, President
and founder, Susan Jorgensen, comptroller, and Chris Woelk, head of
research & development. Over...

Capital budgeting takes into account computing a projects
payback, net present value, internal rate of return and return on
investments. Discuss the advantages and disadvantages on using each
of these.

What is the internal rate of return, net present value with a
10% interest rate, and net present value with a 20% interest rate
of this project. The cash flows are as follows:
Year 0 - Initial investment - 20,000 (make sure to make
investments negative values in Excel cash flow)
Year 1 - 8,000
Year 2 - 8,000
Year 3 - 9,000
Year 4- 12,000
No value after year 4.

What is the Net Present Value?
What is the Internal Rate of Return?
What is the Payback Period?

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