Question
In: Finance
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 assess its acceptability.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Your company is considering investing in one of two mutually exclusive projects. The cost of capital...
Your company is considering investing in one of two mutually
exclusive projects. The cost of capital is 11%. The first project
Has $25,000 annual cash inflows, a 10-year life, and will cost
$120,000 at time zero. The second project has a 7-year life, Annual
cash inflows of $20,000 per year, and a cost of $75,000 at time
zero. Which project has the highest NPV. Assuming that these
projects will most likely be repeated indefinitely into the future,
which project would...
Your company is considering investing in one of two mutually exclusive projects. The cost of capital...
Your company is considering investing in one of two mutually
exclusive projects. The cost of capital is 11%. The first project
Has $25,000 annual cash inflows, a 10-year life, and will cost
$120,000 at time zero. The second project has a 7-year life, Annual
cash inflows of $20,000 per year, and a cost of $75,000 at time
zero. Which project has the highest NPV. Assuming that these
projects will most likely be repeated indefinitely into the future,
which project would...
Diamond City is considering two mutually exclusive investment projects. The cost of capital for these projects...
Diamond City is considering two mutually exclusive investment
projects. The cost of capital for these projects is r. The
projects’ expected net cash flows are as follows: Year Project A
Project B
0 -42,000 -42,000
1 24,000 16,000
2 20,000 18,000
3 16,000 22,000
4 12,000 26,000
a. If r = 10%, which project should be selected under the NPV
method?
b. If r = 20%, which project should be selected under the NPV
method?
c. Calculate each project’s PI...
Diamond City is considering two mutually exclusive investment projects. The cost of capital for these projects...
Diamond City is considering two mutually exclusive investment
projects. The cost of capital for these projects is r. The
projects’ expected net cash flows are as follows: Year Project A
Project B
0 -42,000 -42,000
1 24,000 16,000
2 20,000 18,000
3 16,000 22,000
4 12,000 26,000
a. Calculate each project’s payback (PB) period if r = 10% (up
to 2 decimal places). Which project should be accepted?
b. Calculate each project’s discounted payback (DPB) period if r
= 10%...
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...
Company A is considering the following two mutually exclusive projects. Company A bases their capital budgeting...
Company A is considering the following two mutually exclusive
projects. Company A bases their capital budgeting decisions solely
on the NPV criteria. (Do not round intermediate calculations. Round
your final answer to two decimal places.)
Year
Project 1
Project 2
0
-$75,000
-$75,000
1
$50,000
$20,000
2
$30,000
$21,000
3
$15,000
$59,000
1. At what required rate of return (%) is Company A indifferent
between the two projects?
2. If the required rate of return is less than the crossover...
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...
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...
Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the...
Swenson's is
considering two mutually exclusive projects, Projects A and B, and
has determined that the crossover rate for these projects is 11.7
percent and the required return for both projects is 9 percent.
Given this you know that:
Multiple Choice
both projects have a
zero NPV at a discount rate of 11.7 percent.
neither project will
be accepted if the discount rate is less than 11.7 percent.
the project that is
acceptable at a discount rate of 11 percent...
Braun Industries is considering the following mutually exclusive projects. Braun’s cost of capital is 9%. ...
Braun Industries is considering the following mutually exclusive
projects. Braun’s cost of capital is 9%.
Year Project
A
Project B
0
($86,000)
($86,000)
1
$42,000
$63,000
2
$32,000
$28,000
3
$12,900
$8,000
4
$12,200
$3,000
5
$12,000
$2,000
a. Calculate each
project’s NPV and IRR.
b. Find the Payback Period
for each project.
c. Find the MIRR for each
project.
d. Which of these projects
should Braun accept? Why?
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