Question

In: Finance

A firm has two $1,000, mutually exclusive investment alternatives with the following cash inflows. The cost...

A firm has two $1,000, mutually exclusive investment alternatives with the following cash inflows. The cost of capital is 6 percent. Year Cash Inflow A B 1 $175 $1,100 2 175 - 3 175 - 4 175 - 5 175 - 6 175 - 7 175 - 8 175 - a. What is the internal rate of return on each investment? Which investment should the firm make? b. What is the net present value of each investment? Which investment should the firm make? c. If the cash inflows can be reinvested at 8 percent, which investment should be made?

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

A firm is considering two mutually exclusive investment alternatives, both of which cost $5,000. The firm's...
A firm is considering two mutually exclusive investment alternatives, both of which cost $5,000. The firm's expected rate of return is 12 percent. The cash flows associated with each investment are: Year Investment A Investment B 1 $ 2000 $ 1000 2 $1500 $ 1500 3 $1500 $ 2000 4 $1000 $3000 For each alternative calculate the payback period, the net present value, and the profitably index. Which alternative (if any) should be selected?
A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash...
A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: Time Cash Flow X Cash Flow Y 0 -$90,000 -$75,000 1 35,000 30,000 2 60,000 30,000 3 70,000 30,000 4 - 30,000 5 - 10,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firm’s WACC is 6%, what is the EAA of the project that adds the most value to the firm? Do not round intermediate calculations....
A company has the following mutually exclusive investment alternatives. The cash flows are shown below. Year...
A company has the following mutually exclusive investment alternatives. The cash flows are shown below. Year Project A Project B 0 -$1,000 -$1,000 1 600 300 2 600 600 3 600 900 If the cost of capital is 10%, which investment(s) should the company select? Both Project A and Project B Project B with a NPV of $444.78 Project B with a NPV of $276.31 Project A with a NPV of $493.11 Project A with a NPV of $253.64
A hospitality firm has a choice between two mutually exclusive capital investment alternatives that each requiring...
A hospitality firm has a choice between two mutually exclusive capital investment alternatives that each requiring an initial outlay of $30,000. Project A promises cash flows of $4,000 for the first year and second year; and $42,000 for the third year. Project B offers cash flows of $31,000 for the first year; $18,000 for the second year; and $4,000 for the third year. The minimum required rate of return is 9.00%. Calculate the NPV and IRR of each investment. Based...
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)...
Consider the following two mutually exclusive cost alternatives: Alternative A Alternative B Capital Investment $8,000 $16,000...
Consider the following two mutually exclusive cost alternatives: Alternative A Alternative B Capital Investment $8,000 $16,000 Annual Expenses $3,500 $3,400 Useful life 8 years 12 years Market value at the end of useful life 0 $3,000 Given MARR is 10% per year, answer the following: Assuming Repeatability applies, determine which alternatives should be selected. b. For a study period of 12 years, and assuming repeatability does not hold for the Alternative A consider there will be an annual contracting cost...
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the...
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the present. However, the pattern of revenue from them is different. Alternative A has the potential to bring more revenues later in the project life. The expected revenues of alternative A are: $350, $500, and $850 by the ends of years one to three, respectively. Alternative B promises more immediate cash inflow which is expected to diminish with time: $750, $300, and $100 by the...
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the...
Two mutually exclusive alternatives are bring considered: A and B. Both alternatives cost $1,200 at the present. However, the pattern of revenue from them is different. Alternative A has the potential to bring more revenues later in the project life. The expected revenues of alternative A are: $350, $500, and $850 by the ends of years one to three, respectively. Alternative B promises more immediate cash inflow which is expected to diminish with time: $750, $300, and $100 by the...
You have available two equal-lived, mutually exclusive investment alternatives with cash flows as depicted below. The...
You have available two equal-lived, mutually exclusive investment alternatives with cash flows as depicted below. The alternative planning horizon is 14 years and MARR = 78 . what is the PW2-1? Alternative1 (SR) Alternative2 (SR) Initial investment 36,244 89,650 Annual return 5,076 11,807 Salvage value 3,395 6,797
There are three mutually exclusive alternatives, as vendors to outsource a project, with the following cash...
There are three mutually exclusive alternatives, as vendors to outsource a project, with the following cash flow and useful life. Which of these three alternatives would you recommend to be selected? The MARR is 10% per year. Vendor 1 Vendor 2 Vendor 3 First Cost $60,000 $35,000 $25,000 Annual operating and maintenance cost $3,000 every 4 years $1,000 per year $2,000 in yr 1 and it increases by $200 every year thereafter Salvage value $10,000 $4,000 $3,000 Useful life, years...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT