Question

In: Finance

Proka is evaluating two projects for investment purposes. The required return for each project is 8...

Proka is evaluating two projects for investment purposes. The required return for each project is 8 percent and the cash flows are listed below:

YEar Project A Project B
Cash flow in $ Cash Flow in $
1 100 300
2 400 400
3 400 400
4 400 400
5 300 100

1. Calculate the net present value for each stream

2. Calculate the net present value of each cash flow stream at 0 percent discount rat

Solutions

Expert Solution

a.Project A

NPV of future cash flows is calculated using a financial calculator by inputting the below:

  • Press the CF button.
  • CF0= 0.
  • Cash flow for each year should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 8%.
  • Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $1,251.25.

Project B

NPV of future cash flows is calculated using a financial calculator by inputting the below:

  • Press the CF button.
  • CF0= 0.
  • Cash flow for each year should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 8%.
  • Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $1,300.32.

b.Project A

NPV of future cash flows is calculated using a financial calculator by inputting the below:

  • Press the CF button.
  • CF0= 0.
  • Cash flow for each year should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 0%.
  • Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $1,600

Project B

NPV of future cash flows is calculated using a financial calculator by inputting the below:

  • Press the CF button.
  • CF0= 0.
  • Cash flow for each year should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 0%.
  • Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $1,600.

In case of any further queries, kindly comment on the solution.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial investment for...
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial investment for each project is $40,000. Project A will generate cash inflows equal to $15,625 at the end of each of the next five years; Project B will generate only one cash inflow in the amount of $79,500 at the end of the fifth year (i.e., no cash flows are generated in the first four years). The required rate of return of Ace Inc. is 10...
A company is considering two mutually exclusive projects, the company’s required return is 8 percent and...
A company is considering two mutually exclusive projects, the company’s required return is 8 percent and they do not have any capital constraints. Based on the profitability index, what is your recommendation concerning these projects?                                                             Project            A                                 Project B                                     Year    Cash Flow                   Year    Cash Flow                                        0       -$38,500                        0       -$42,000                                        1         $20,000                        1         $10,000                                        2         $24,000                        2         $40,000 Neither project is acceptable. You should accept both projects since both of their PIs are greater than 1. You should accept project A since it has the higher PI. You should accept...
You are considering two independent projects that have a required return of 15 percent. Project A...
You are considering two independent projects that have a required return of 15 percent. Project A has an initial cost of $198,700 and cash inflows of $67,200, $109,600, and $88,700 for years 1 to 3 respectively. Project B has an initial cost of $102,000 and cash inflows of $37,600 and $91,200 for years 1 and 2, respectively. Given this information, which one of the following statements is correct based on the NPV and IRR methods of analysis? You should accept...
You are considering two independent projects. The required rate of return is 13.75 percent for Project...
You are considering two independent projects. The required rate of return is 13.75 percent for Project A and 14.25 percent for Project B. Project A has an initial cost of $51,400 and cash inflows of $21,400, $24,900, and $22,200 for Years 1 to 3, respectively. Project B has an initial cost of $38,300 and cash inflows of $23,000 a year for 2 years. Which project(s), if either, should you accept? Accept both A and B Reject both A and B...
Moe’s Tablet Warehouse is evaluating two potential projects. Project A has an initial investment of $800...
Moe’s Tablet Warehouse is evaluating two potential projects. Project A has an initial investment of $800 and yearly cash flows of $500, $600, and $700. Project B has an initial investment of $500 and yearly cash flows of $300, $400, and $500. Moe’s has a rate of return of 8%. Which project has the greater profitability index and what is its PI? Group of answer choices Project A. Its PI is 0.916. Project B. Its PI is 0.823. Project A....
QUESTION 3 A company is considering two mutually exclusive projects, the company’s required return is 8...
QUESTION 3 A company is considering two mutually exclusive projects, the company’s required return is 8 percent and they do not have any capital constraints. Based on the profitability index, what is your recommendation concerning these projects?                                                             Project            A                                 Project B                                     Year    Cash Flow                   Year    Cash Flow                                        0       -$38,500                        0       -$42,000                                        1         $20,000                        1         $10,000                                        2         $24,000                        2         $40,000 You should only accept project B since it has the largest PI and the PI exceeds 1. You should accept both projects since both of their PIs are positive. You...
Comparing Investment Criteria. Consider the following two mutually exclusive design projects using a required return of...
Comparing Investment Criteria. Consider the following two mutually exclusive design projects using a required return of 18%: Year Cash flow (A) Cash flow (B) 0 -22000 -2200 1 500 1100 2 4000 900 3 10000 1100 4 42000 4000 1. Find the NPV for both projects a and b. (round to second decimal) 2. Find the IRR for both projects a and b. (round to secound decimal) 3. Find the PI for both projects A and B. (round to second...
You are considering two investment projects each having the same cost. Each project is facing the...
You are considering two investment projects each having the same cost. Each project is facing the following events, probabilities and net profits: ALTERNATIVES:    a1: Newspaper a2: Pamphlet EVENTS: e1 e2 e3 e1 e2 e3 NET PROFITS: 4000 6000 9000 3000 7000 8000 PROBABILITIE: .25 .50 .25 .30 .50 .20 1. Construct a decision tree and show which project you would chose by using the expected value method ()? 2. Calculate the coefficient of variation of each project, and determine...
Coore Manufacturing has the following two possible projects. The required return is 12 percent. Year Project...
Coore Manufacturing has the following two possible projects. The required return is 12 percent. Year Project Y Project Z 0 –$82,000       –$81,000       1 31,160    34,000       2 31,160 32,800       3 31,160    30,500       4 31,160    27,300       a. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2...
14.2 Better Health, Inc is a evaluating two investment projects, each of which requires an up-front...
14.2 Better Health, Inc is a evaluating two investment projects, each of which requires an up-front expenditure of $1.5 million. The projects are expected to produce the following net cash inflows: Project A Project B Year $500,000 $2,000,00 1 1,000,000 1,000,000 2 2,000,000 600,000 3 ($1,500,000) a. What is each project's IRR? b. What is each project's NPV if the cost of capital is 10 percent? 5 percent? 15 percent?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT