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
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?
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= 10%...
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?
Your firm has estimated the following cash flows for two mutually exclusive capital investment projects. The...
Your firm has estimated the following cash flows for two
mutually exclusive capital investment projects. The firm's required
rate of return is 13%. Use this information for the next 3
questions.
Year Project A Cash Flow Project B Cash
Flow
0 -$100,000 -$100,000
1 28,900 48,000
2 28,900 40,000
3 28,900 40,000
4 28,900
5 28,900
Which of the following statements best describes projects A and
B?
a) Project A should be accepted because it has the highest
NPV.
b)...
Jamison is considering two mutually exclusive projects with the following cash flows and the cost of...
Jamison is considering two mutually exclusive projects with the
following cash flows and the cost of capital of 10%.
Year XX YY
0 -$1,000 -$1,200
1 $800 $700
2 $800 $700
3 $700
a) Based on Annualized NPV, which project would you choose? Why
ANPV is better than NPV in this case.?
ABC Company is considering investing in two mutually exclusive projects, L and S. The two projects’...
ABC Company is considering investing in two mutually exclusive
projects, L and S. The two projects’ forecasted cash flows are
shown as below. WACC is 10%.
Year 0 1 2 3 4
Project L CF ($) -1,000 700 500 200 0
Project S CF ($) -1,200 100 300 800 1,000
a. Calculate the NPVs for both projects. b. Calculate the IRRs
for both projects. c. Calculate the Discounted Paybacks for both
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