Question
In: Finance
A company is considering a number of non-mutually exclusive acquisitions. Possible targets are: 1) Firm A,...
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A company is considering a number of non-mutually exclusive acquisitions. Possible targets are: 1) Firm A, with a beta equal to 1 and a projected return on the equity investment of 9%, 2) Firm B, with a beta equal to 2 and a projected return on the equity investment of 32%, 3) Firm C, with a beta equal to 3 and a projected return on the equity investment of 31%. Assume a risk free rate equal to zero and a 10% market risk premium. Under the CAPM, the company should acquire all three targets acquire targets A and B, but not C. acquire targets B and C, but not A acquire targets A and C, but not B. |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
A firm with a WACC of 10% is considering the following mutually
exclusive projects:
0
1
2
3
4
5
Project 1
-$250
$55
$55
$55
$190
$190
Project 2
-$650
$300
$300
$40
$40
$40
Which project would you recommend?
Select the correct answer.
a. Neither Project 1 nor 2, since each project's NPV <
0.
b. Project 2, since the NPV2 >
NPV1.
c. Both Projects 1 and 2, since both projects have IRR's >
0.
d. Both...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
A firm with a WACC of 10% is considering the following mutually
exclusive projects: 0 1 2 3 4 5 Project 1 -$200 $40 $40 $40 $235
$235 Project 2 -$450 $200 $200 $80 $80 $80 Which project would you
recommend? Select the correct answer.
a. Both Projects 1 and 2, since both projects have IRR's >
0.
b. Neither Project 1 nor 2, since each project's NPV < 0.
c. Both Projects 1 and 2, since both projects have...
Thomas Company is considering two mutually exclusive projects. The firm, which has a cost of capital...
Thomas Company is considering two mutually exclusive projects.
The firm, which has a cost of capital of 8%, has estimated its
cash flows as shown in the following table:
A is on the left, B is on the right
Initial investment
130000
102000
Year
Cash inflows
1
20000
55000
2
40000
40000
3
50000
20000
4
60000
15000
5
50000
20000
a. Calculate the NPV of each project, and assess its
acceptability.
b. Calculate the IRR for each project, and...
A firm is considering two mutually exclusive projects, A and B. The projects are different in...
A firm is considering two mutually exclusive projects, A and B.
The projects are different in that they have different returns
depending on general economic conditions. The firm forecasts that
return on the market, and the returns on each project, along with
their associated probabilities will be given by the following
table. You can assume a 5% risk free rate and a 6% market risk
premium. Assume the CAPM holds. Compare the expected returns to the
cost of capital for...
A firm is considering three mutually exclusive alternatives aspart of a production improvement program. The...
A firm is considering three mutually exclusive alternatives as
part of a production improvement program. The alternatives are as
follows:A
B
CInstalled Cost
($)
10,000
15,000
20,000Uniform Annual benefit ($)
1,625
1,625
2000Useful life
(Years)
20
20
20 For each alternative, the salvage value is zero. The MARR is 6%.
Which alternative should be selected based on the INCREMENTAL
ANALYSIS method?
Capital budgeting criteria: mutually exclusive projects A firm with a WACC of 10% is considering the...
Capital budgeting criteria: mutually exclusive projects
A firm with a WACC of 10% is considering the following mutually
exclusive projects:
0
1
2
3
4
5
Project A
-$250
$50
$50
$50
$200
$200
Project B
-$600
$300
$300
$70
$70
$70
Which project would you recommend?
Select the correct answer.
I. Both Projects A and B, since both projects have IRR's >
0.
II. Project A, since the NPVA >
NPVB.
III. Both Projects A and B, since both...
A firm is considering three mutually exclusive alternatives as part of a production improvement program. The...
A firm is considering three mutually exclusive alternatives as
part of a production improvement program. The alternatives are:
A
B
C
installed cost
$10,000
$15,000
$20,000
annual benefit
1,625
1,530
1,890
useful life (yrs)
10
20
20
The salvage value of each alternative is zero. At the end of 10
years, Alternative A could be replaced with another A with
identical cost and benefits.
(a) which alternative should be selected if interest is 6%?
(b) 3%
(c) if there is...
Capital budgeting criteria: mutually exclusive projects A firm with a WACC of 10% is considering the...
Capital budgeting criteria: mutually exclusive projects
A firm with a WACC of 10% is considering the following mutually
exclusive projects:
Project A
-$300
$75
$75
$75
$220
$220
Project B
-$550
$250
$250
$80
$80
$80
Which project would you recommend?
Select the correct answer.
I. Both Projects A and B, since both projects have IRR's >
0.
II. Project A, since the NPVA >
NPVB.
III. Project B, since the NPVB >
NPVA.
IV. Neither A or B, since...
9) A firm with a WACC of 10% is considering the following mutually exclusive projects: 0...
9)
A firm with a WACC of 10% is considering the following mutually
exclusive projects:
0
1
2
3
4
5
Project 1
-$200
$70
$70
$70
$165
$165
Project 2
-$550
$300
$300
$130
$130
$130
Which project would you recommend?
Select the correct answer.
a. Neither Project 1 nor 2, since each project's NPV <
0.
b. Project 2, since the NPV2 >
NPV1.
c. Both Projects 1 and 2, since both projects have IRR's >
0.
d....
1. Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown...
1.
Suppose your firm is considering two mutually exclusive, required
projects with the cash flows shown as follows. The required rate of
return on projects of both of their risk class is 8 percent, and
the maximum allowable payback and discounted payback statistic for
the projects are two and three years, respectively.
Time
0
1
2
3
Project A Cash Flow
?20,000
10,000
30,000
1,000
Project B Cash Flow
?30,000
10,000
20,000
50,000
Use the discounted payback decision rule to...
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