Question
In: Finance
Your division is considering 2 investment projects, each which requires an upfront expenditure of $25 million....
Your division is considering 2 investment projects, each which requires an upfront expenditure of $25 million. You estimate 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 |
| 0 | -$25 | -$25 |
| 1 | $5 | $20 |
| 2 |
$10 |
$10 |
| 3 | $15 | $8 |
| 4 | $20 | $6 |
a) What is the regular payback period for each of these projects?
b) What is the discounted payback period for each of these projects?
c) If the projects are independent and the cost of capital is 10%, which project or projects would you undertake?
d) If the projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?
e) If the projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?
f) Based on the profitability index (PI), what is your recommendation concerning these projects if these projects are independent?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Your company is currently considering two investment projects. Each project requires an upfront expenditure of $25...
Your company is currently considering two investment projects.
Each project requires an upfront expenditure of $25 million. You
estimate that the cost of capital is 10% and the investments will
produce the following after tax cash flows:
Year
Project A
Project B
1
$5,000,000
$20,000,000
2
$10,000,000
$10,000,000
3
$15,000,000
$8,000,000
4
$20,000,000
$6,000,000
a) Calculate the payback period for
both projects, then compare to identify which project the firm
should undertake. [Note: you are supposed to show every step...
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....
Your division is considering two inverstment projects, each of which required an upfront expenditure of $25million....
Your division is considering two inverstment projects, each of
which required an upfront expenditure of $25million. You estimate
that the cost of capital is 10 percent and that the investments
will produce the following after-tax cash flows (in millions of
dollars). I the firms WACC is 10 percent, and it uses a 2
percentage point (plus or minus) risk premium, and if project A is
deemed riskier than usual project, what would its risk adjusted NPV
be?
Year Project A...
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...
Your division is considering two investment projects, each of which requires an up-front expenditure of $20...
Your division is considering two investment projects, each of
which requires an up-front expenditure of $20 million. You estimate
that the investments will produce the following net cash flows:
Year Project A Project B
1 $4,500,000 $20,000,000
2 10,000,000 10,000,000
3 20.000.000 6,500,000
What are the two project’s NPVs assuming the cost of capital is
3%, 12%, 17%?
What are the two projects’ IRRs at those same costs of
capital?
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 $17 million. You estimate
that the investments will produce the following net cash flows:
Year
Project A
Project B
1
$ 4,000,000
$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 facility investment projects, each of which requires an up-front expenditure of...
Your division is considering two facility 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
project's net present values, assuming the cost of the capital is
a)10% b)5% )15%? What does this analysis tell you about the
projects?
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