Question
In: Accounting
Should a project be accepted if it offers an annual after-tax cash flow of $1,250,000 indefinitely, costs $10 million, is riskier than the firm's average projects, and the firm uses a 12.5% WACC?
Should a project be accepted if it offers an annual after-tax cash flow of $1,250,000 indefinitely, costs $10 million, is riskier than the firm's average projects, and the firm uses a 12.5% WACC?
A. Yes, since NPV is positive.
B. Yes, since a zero NPV indicates marginal acceptability.
C. No, since NPV is zero.
D. No, since NPV is negative.
Solutions
Expert Solution
D. No, since NPV is negative.
NPV =
CF0 = -10 million
CF1 = 1.25 million/12.5%
NPV = -10+10 = 0
The 12.5% rate does not reflect the project's greater risk, so NPV is negative. Since the NPV is negative, a project should not be accepted.
The 12.5% rate does not reflect the project's greater risk, so NPV is negative. Since the NPV is negative, a project should not be accepted.
D. No, since NPV is negative.
Renze Joy Candido answered 3 years agoRelated Solutions
Your division is considering two projects. Its WACC is 10%, and the projects’ after-tax cash flows...
Your division is considering two projects. Its WACC is 10%, and
the projects’ after-tax cash flows (in millions of dollars) would
be as follows:
Time
0
1
2
3
4
Project A
-$30
$5
$10
$15
$20
Project B
-$30
$20
$10
$8
$6
e) The crossover rate is 13.5252%. Explain what this rate is and
how it affects the choice between mutually exclusive projects.
f) Define the MIRR. What’s the difference between the IRR and
the MIRR, and which...
Your division is considering two projects. Your division’s WACC is 10%, and the projects’ after-tax cash...
Your division is considering two projects. Your division’s WACC
is 10%, and the projects’ after-tax cash flows (in millions of
dollars) would be as follows: (Time Period is in terms of years.)
Please keep two decimals for your results, i.e., 4.55 years, 3.09%,
$98.98, etc.
Time 0. 1. 2. 3. 4
Project A. -1,000. 100. 300. 500. 600
Project B. -1,000. 600. 600. 200. 100
Calculate the Discounted Payback Period of Project A:
(14’)
Project A
Time Period:
0...
Your division is considering two projects. Your division’s WACC is 10%, and the projects’ after-tax cash...
Your division is considering two projects. Your division’s WACC
is 10%, and the projects’ after-tax cash flows (in millions of
dollars) would be as follows: (Time Period is in terms of years.)
Please keep two decimals for your results, i.e., 4.55 years, 3.09%,
$98.98, etc.
Time 0. 1. 2. 3 . 4
Project A. -1,000. 100. 300. 500. 600
Project B. -1,000. 600. 600. 200. 100
Calculate the Discounted Payback Period of Project A:
(14’)
Project A
Time Period:
0...
Your division is considering two projects. Its WACC is 10%, and the projects’ after-tax cash flows...
Your division is considering two projects. Its WACC is 10%, and
the projects’ after-tax cash flows (in millions of dollars) would
be as follows:
Time
0
1
2
3
4
Project A
-$30
$5
$10
$15
$20
Project B
-$30
$20
$10
$8
$6
a) Calculate the projects’ NPVs, IRRs, MIRRs, regular paybacks,
and discounted paybacks.
b) If the two projects are independent, which project(s) should
be chosen?
c) If the two projects are mutually exclusive and the WACC is...
Consider the following project’s after-tax cash flow and the expected annual inflation rates during the project...
Consider the following project’s after-tax cash flow and the
expected annual inflation rates during the project period.
Convert the cash flows in actual dollars into equivalent
constant dollars with the base year 0. (complete the table for
constant dollars cash flow)
If the annual real interest rate is 15%, what is the present
worth of the cash flow? Is this project acceptable?
Final answer section (b):
actual cash flow
year
amount
0
- $295,000
1
$ 95,000
2
$ 45,000...
A project will generate $1 million net cash flow annually in perpetuity. If the project costs $7 million, what is the lowest WACC shown below that will make the NPV negative?
A project will generate $1 million net cash flow annually in perpetuity. If the project costs $7 million, what is the lowest WACC shown below that will make the NPV negative?
A. 10%
B. 12%
C. 14%
D. 16%
Machine B costs $16 million and will provide after-tax inflows of $6.5 million per year for 8 years. If the WACC is 9%, which machine should be acquired?
You are considering two mutually exclusive projects which
can be repeated. A costs $15 million but will provide inflows of
$5.5 million per year for 4 years. If Machine A was replaced, its
cost would be $18 million and its cash inflows would increase to
$7.2 million due to production efficiencies. Machine B costs $16
million and will provide after-tax inflows of $6.5 million per year
for 8 years. If the WACC is 9%, which machine should be acquired?
Use...
How much cash flow BEFORE tax and interest is necessary to support a project that requires $4 million annually for equity investors and $2 million annually in interest payments if the firm's tax rate is 35%?
How much cash flow BEFORE tax and interest is necessary to support a project that requires $4 million annually for equity investors and $2 million annually in interest payments if the firm's tax rate is 35%?
A. $7.40 million
B. $8.10 million
C. $8.15 million
D. $8.85 million
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 40%, there is $10 million in common stock requiring a 12% return, and $6 million in bonds requiring an 8% return?
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 40%, there is $10 million in common stock requiring a 12% return, and $6 million in bonds requiring an 8% return?
A. $1,392,000
B. $1,488,000
C. $2,480,000
D. $2,800,000
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 35%, there is $13 million in common stock requiring a 10% return, and $6 million in bonds requiring a 6% return?
How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity holders if the tax rate is 35%, there is $13 million in common stock requiring a 10% return, and $6 million in bonds requiring a 6% return?
A. $1,392,000
B. $1,488,000
C. $2,360,000
D. $2,480,000
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- For Questions 1-3: consider the following code: public class A { private int number; protected String...
- You are tasked with assessing the health department’s intervention program in preventing recurrence of acute alcohol...
- Compare the MOSFET, JFET , and BJT and identify the reasons these devices behave differently. What...
- How would you use SAS Enterprise Miner to create a neural network model of your example?
- Explain the use of neural networking modeling in predictive analytics.
- Current Market Mix of Netflix, as detail as possible, please.
- This is all one question, thank you so much in advance! You must evaluate a proposal...
ADVERTISEMENT