Consider the following two projects: Cash flows Project A Project B C0 −$ 260 −$ 260...

Consider the following two projects: Cash flows Project A Project B C0 −$ 260 −$ 260 C1 110 138 C2 110 138 C3 110 138 C4 110 a. If the opportunity cost of capital is 10%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 10%. c. Which one would you choose if the cost of capital is 15%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h-1. If the opportunity cost of capital is 10%, what is the profitability index for each project? h-2. Is the project with the highest profitability index also the one with the highest NPV? h-3. Which measure should you use to choose between the projects?

Expert Solution

jeff jeffy answered 1 year ago

Consider the following two projects: Cash flows Project A Project B C0 −$ 280 −$ 280...

Consider the following two projects: Cash flows Project A Project B C0 −$ 280 −$ 280 C1 120 148 C2 120 148 C3 120 148 C4 120 a.What are the internal rates of return on the two projects? b. If the opportunity cost of capital is 11%, what is the profitability index for each project?

Consider two mutually exclusive projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV...

Consider two mutually exclusive projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV at 12% A −31,000 21,800 21,800 +$5,843 B −51,000 34,000 34,000 +6,462 a. Calculate IRRs for A and B. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Consider the following two mutually exclusive projects withtheir expected Cash Flows ($)Project C0 C1...

Consider the following two mutually exclusive projects with their expected Cash Flows ($)Project C0 C1 C2 C3A –$100 +$60 +$60 +$60B –$100 ------ ------ +$208.35What is the cross-over rate for these two projects?a. unknown, because the discount rate is unkownb. 28%c. 36%d. 32%e. 15%

Consider the following two mutually exclusive projects: Cash Flows ($) Project C0 C1 C2 C3 A...

Consider the following two mutually exclusive projects: Cash Flows ($) Project C0 C1 C2 C3 A -$100 +$60 +$60 +$60 B -$100 ---- ---- +$208.35 Calculate the NPV of each project for a discount rate of 14%. What is approximately the IRR for each project individually? Use the IRR cross-over method to determine which of the projects you should accept (describe the correct decision rule describing when you pick A versus B based on what discount rate).

Consider projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV at 10% A...

Consider projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV at 10% A −33,000 23,400 23,400 +$7,612 B −53,000 36,000 36,000 +9,479 a. Calculate IRRs for A and B. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,000...

Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,000 2,000 0 0 0 0 B −4,000 2,000 2,000 5,000 2,000 2,000 C −5,000 2,000 1,300 0 2,000 2,000 a. If the opportunity cost of capital is 12%, which project(s) have a positive NPV? Positive NPV project(s) Project A Project B Project C Projects A and B Projects A and C Projects B and C Projects A, B, and C No project b. Calculate...

Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,500...

Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,500 2,500 0 0 0 0 B −5,000 2,500 2,500 5,500 2,500 2,500 C −6,250 2,500 2,500 0 2,500 2,500 a. If the opportunity cost of capital is 9%, which project(s) have a positive NPV? Positive NPV project(s) Project A Project B Project C Projects A and B Projects A and C Projects B and C Projects A, B, and C No project b. Calculate...

Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,800...

Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,800 2,800 0 0 0 0 B −5,600 2,800 2,800 5,800 2,800 2,800 C −7,000 2,800 2,500 0 2,800 2,800 If the opportunity cost of capital is 12%, which project(s) have a positive NPV? Positive NPV Projects Calculate the payback period for each project. Project A years Project B years Project C years Which project(s) would a firm using the payback rule accept...

The following are the cash flows of two projects: Year Project A Project B...

The following are the cash flows of two projects: Year Project A Project B 0 -250 -250 1 130 150 2 130 150 3 130 150 4 130 If the opportunity cost is 10%, what is the profitability index for each project? Project Profitability Index A B

Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0...

Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0 –$ 68,000 –$ 83,000 1 48,000 47,000 2 43,000 56,000 3 38,000 59,000 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 5 percent. Calculate the NPV for each project. (Do not round intermediate calculations and round your answers...

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