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

You are considering the following two mutually exclusive projects. The required return on each project is...
You are considering the following two mutually exclusive projects. The required return on each project is 14 percent. Which project should you accept and what is the best reason for that decision? Year Project A Project B 0 −$ 24,000 −$ 21,000 1 9,500 6,500 2 16,200 9,800 3 8,700 15,200 Project A; because it pays back faster Project A; because it has the higher profitability index Incorrect Project B; because it has the higher profitability index Project B; because...
A company is evaluating two independent projects for capital investment purposes. If the company has only...
A company is evaluating two independent projects for capital investment purposes. If the company has only $85 million to invest, and its required return is 10 percent by how much the company’s value will increase? All values are in millions. Project 1 Project 2 0 -50 -50 1 30 0 2 25 0 3 20 0 4 20 150 A) 52.45 million B) 26.62 million C) 79.07 million D) 60.77 million E) 45.33 million
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...
You are considering two independent projects that have differing requirements. Project A has a required return...
You are considering two independent projects that have differing requirements. Project A has a required return of 12 percent compared to Project B's required return of 13.5 percent. Project A costs $75,000 and has cash flows of $21,000, $49,000, and $12,000 for Years 1 to 3, respectively. Project B has an initial cost of $70,000 and cash flows of $15,000, $18,000, and $41,000 for Years 1 to 3, respectively. Based on the NPV, you should:
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...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT