The blue curve (labeled "L") depicts the NPV for a project with larger cash flows later of -$1,000, $100, $300, $400, and $675. The red curve (labeled "S") depicts the NPV for a project with larger cash flows sooner of -$1,000, $500, $400, $300, and $100. Drag on the graph either left or right tochange the cost of capital interest rate at which the NPV is evaluated for the two projects.NPV ($)500-400300200-100.40100-78.820-100-Project S: NPV = CF₁+N CF₁-=1 (1+r)N CF₂Project L: NPV = CF₁ + Σ = 1 (1+r) ²+ ΣΜ = = -S1, 000 +²L¡=-$1,000+S15$500$400$300$100(1+0.1000)¹ (1+0.1000)² (1+0.1000)³ (1+0.1000)*20+Cost of Capital (%)$100$300$400$675(1+0.1000)¹ (1+0.1000) (1+0.1000)³ (1+0.1000)*+++++= $78.82= $100.40 7. The internal rate of return (IRR) is the point at which a project's NPV equals 0. If the cost of capital were 5% (move the slider so that is the case), thena. Project S is the better project because it has the higher IRR.b. Project L is the better project because it has the higher NPV.c. It depends because there is a conflict between IRR and NPV.-Select-8. If the cost of capital was greater than the point at which the two projected NPVs are equal, thena. It depends because there is a conflict between IRR and NPV.b. There is no conflict because Project S has both a higher NPV and a higher IRR than Project L.c. There is no conflict because Project L has both a higher NPV and a higher IRR than Project S.-Select-

NPV is short for net present value.. It gives the worth of a long-term project/asset/investment over…

Answered: 7. The internal rate of return (IRR) is…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1CMA

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Suppose a project has an initial outflow of $600000. If the cash flows projected for years 1-6 are $225000, $200000, $250000, $100000, $0, and $50000, respectively the IRR. Create a data table in excel to solve for the NPV based on different costs of capital and initial outflow.
Suppose a project has an initial outflow of $600000. If the cash flows projected for years 1-6 are $225000, $200000, $250000, $100000, $0, and $50000, respectively the IRR. Draw the timeline. Set up (by hand) the equation to solve for IRR. DO NOT SOLVE. Solve for the IRR using excel. Create a data table in excel to solve for the NPV based on different costs of capital and initial outflow.
An NPV profile plots a project's NPV at various costs of capital, labeled "A " and "B" in the graph. A project's NPV profile is shown as follows. Identify the range of costs (ranges labeled "A" and "B") of capital that a firm would use to accept and reject this project. A B The point at which the NPV profile intersects the horizontal axis represents the .
Internal rate of return and modified internal rate of return For the project shown in the following table,, calculate the internal rate of return (IRR) and modified internal rate of return (MIRR). If the cost of capital is 12.13%, indicate whether the project is acceptable according to IRR and MIRR. The project's IRR is %. (Round to two decimal places.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment (CF) Year (t) 1 2 3 4 5 Print $70,000 Cash inflows (CFt) $15,000 $25,000 $25,000 $15,000 $10,000 Done X
For a project that has an initial cash outflow followed by cash inflows, the profitability index (PI) is equal to the present value of cash inflows divided by the cost of capital. True kalse
Click on the quadrant that will yield the best capital budgeting decision. - NPV Hi IRR Low IRR + NPV
A project's NPV profile graph intersects the Y-axis at 0% cost of capital and intersects the X-axis at the project's IRR undiscounted NPV. The point at which 2 projects' profiles cross one another is the crossover rate. The crossover rate can be found by calculating the IRR cash flows (Project Delta). A steep (where NPV = 0). The Y-axis intersection point represents the project's of the differences in the projects' NPV profile indicates that increases in the cost of capital lead to large declines in NPV. If a project has most of its cash flows coming in later years, its NPV will decline v sharply if the cost of capital increases; but a project whose cash flows come earlier will not be severely penalized by high capital costs. The significance of the crossover rate is that at any cost of capital [greater less than the crossover rate, the NPV and IRR methods will provide the same conclusion for evaluating mutually exclusive projects. However, at any cost of capital than the crossover…
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An NPV profile plots a project’s NPV at various costs of capital, labeled "A" and "B" in the graph. A project’s NPV profile is shown as follows. Identify the range of costs (ranges labeled "A" and "B") of capital that a firm would use to accept and reject this project. A accept or reject B accept or reject The point at which the NPV profile intersects the horizontal axis represents the .

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