QUESTION ONEYou are a senior manager at Zambia Airways and have been authorized to spend up toK400,000 for projects. The three projects you are considering have the followingcharacteristics:ProjectProject ADetailsInitial investment of K280,000. Cash flow of K190,000 at year 1and K170,000 at year 2. This is a plant expansion project.Initial investment of K390,000. Cash flow of K270,000 at year 1and K240,000 at year 2. This is a new product developmentproject.Initial investment of K230,000. Cash flow of K160,000 at year 1and K190,000 at year 2. This is a market expansion project.Project BProject CAssume the corporate discount rate is 10 percent, please offer your recommendations byranking the projects, backed by your analysis using:(i) Net Present Value(ii) Profitability Index(iii) Payback period, and(iv) Critique the flaws of each technique.[6 marks][5 marks][3 marks][6 marks]Total [20 marks]

1) Net Present Value=Sum of the present value of cash inflows-Present value of cash outflows Project…

Assume the corporate discount rate is 10 percent, please offer your recommendations by ranking the projects, backed by your analysis using: (i) Net Present Value (ii) Profitability Index (iii) Payback period, and (iv) Critique the flaws of each technique. [6 marks] [5 marks] [3 marks] [6 marks] Total [20 marks]

Assume the corporate discount rate is 10 percent, please offer your recommendations by ranking the projects, backed by your analysis using: (i) Net Present Value (ii) Profitability Index (iii) Payback period, and (iv) Critique the flaws of each technique. [6 marks] [5 marks] [3 marks] [6 marks] Total [20 marks]

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the two mutually exclusive investment projects A and B: Project A -2,000 2,000 Project B -5,000 Cash Flows Year 0 Year 1 Year 2 3,000 10,000 (a) Verify that (yearly) Internal Rate of Return for Projects A and B are approximately 82.2% and 41.4%. (b) Suppose the cost of capital (the interest rate that you can borrow or invest) is 10% p.a. for both projects. Which project would you choose? What is the implication for decision rule in project appraisal by using Internal Rate of Return method?
Y-Bar uses IRR to evaluate projects. The company has a cost of capital of 15% They are currently comparing two mutually exclusive projects with the following projected cash flows: 3. Project X -R500 000,00-R360 000,00 Project Y Initial Investment Annual Cash flows R25 000,00 R100 000,00 R60 000,00 R250 000,00 R250 000,00 R400 000,00 Year 1 Year 2 R60 000,00 Year 3 Year 4 R90 000,00 Based on the information above, which statement is most accurate: (a) The company will select projectY as it has the highest NPV. (b) The company will select project Y as it has the highest IRR. (c) The company will not select either project X or Y on the bases of IRR. (d) The company will select both project X and Y as the IRR of the projects are very similar. (e) None of the above
B Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Initial investment. Present value of future cash flows Project A $ 420,000 770,000 Required: 1. Is Shaylee able to invest in all of these projects simultaneously? 2-a. Calculate the profitability index for each project. 2-b. What is Shaylee's order of preference based on the profitability index? Complete this question by entering your answers in the tabs below. Project B $ 235,000 420,000 Req 1 Req 2A and 28 Is Shaylee able to invest in all of these projects simultaneously? Is Shaylee able to invest in all of these projects simultaneously? Reg 1 Req 2A and 2B > Project C $725,000 1,205,000 Project Di $950,000 1,565,000
Assume that you have started a manufacturing/Service Organization in UAE with a capital of $400,000-$900,000. You are free to assume / invest within the range of $ 400,000 - $ 900,000, depending on the size of the business. In this respect you need to assume cash flows for Six years and calculate the NPv of the project as well as show the demand and supply of your goods through linear applications and linear lines and find out the BEP of your business and take necessary actions on the basis of your results.
Your boss hands you the following information for a pair of mutually exclusive projects and asks for your recommendation. What should you do? Cash Flows Project A B Cost of Capital 10% 10% IRR 38% 22% Year 0 $10,000 $10,000 The NPV of project A is $. and the NPV of project B is $ (Round to two decimal places as needed.) Year 1 58000 $2600 Year 2 $5000 $6000 Using the NPV rule, project Year 3 $4000 $7000 should be selected.
The management team is considering two hotel projects. Project A will be in Jamaica with an initial investment of $865,000 and Project B will be in Canada with an initial investment of $750,000. Years Project A Project B 1 $316,000.00 $200,000.00 2 $350,000.00 $200,000.00 3 ($20,000.00) ($15,000.00) 4 $280,000.00 $390,000.00 The cost of capital for Project A is 13% and the cost of capital for Project B is 15%. Calculate the Net Present Value for Project A.
X construction is considering two projects to develop. The estimated net cash flow from each project is as follows:YearProject X ($)Project Y ($)1110,00075,000265,000150,0003100,00060,0004115,00055,000535,00060,000Total425,000400,000Each project requires an investment of $ 200,000. The cost of capital is 10%.Require toa) Calculate Net Present Value, Payback period, ARR and Profitability Index.b) Which Project is to be recommended to develop based on NPV, Profitability Index, Payback period and ARR? Suggest
You are a senior manager at Poeing Aircraft and have been authorized to spend up toK400,000 for projects. The three projects you are considering have the followingcharacteristics:Project A. Initial investment of K280,000. Cashflow at year 1 will be 190,000 while in year2, will reduce to K170,000. This is a plant expansion program and as such, the requiredrate of return is 10.3 percent.Project B. Initial investment of K390,000. Cashflow at year 1 will be 270,000 while in year2, will reduce to K240,000. This is a new product development project where the requiredrate of return is 20.4 percent.Project C. Initial investment of K230,000. Cashflow at year 1 will be 160,000 while in year2, will increase to K190,000. This is a market expansion project where the required rateof return is 15.7 percent.Please offer your recommendations, back your analysis with using the following methods: (i) (ii) (iii) Payback period IRR NPV
The management team is considering two hotel projects. Project A will be in Jamaica with an initial investment of $985,000 and Project B will be in Canada with an initial investment of $850,000. Years Project A Project B 1 $350,000.00 $457,000.00 2 $575,000.00 $500,000.00 3 ($53,000.00) ($100,000.00) 4 $880,000.00 $780,000.00 The cost of capital for Project A is 15% and the cost of capital for project B is 13%. Calculate the Discounted Payback Period for Project A
The management team is considering two hotel projects. Project A will be in Jamaica with an initial investment of $985,000 and Project B will be in Canada with an initial investment of $850,000. Years Project A Project B 1 $350,000.00 $457,000.00 2 $575,000.00 $500,000.00 3 ($53,000.00) ($100,000.00) 4 $880,000.00 $780,000.00 The cost of capital for Project A is 15% and the cost of capital for project B is 13%. Calculate the Discounted Payback Period for Project B Question 17 Answer a. 5.4 Years b. 3.6 years c. 4.5 Years d. 3.3 years
Pepper Co is contemplating three available investment opportunities, the cash flows of which are given below. Project Initial investment Cash flow Y1 Y2 Y3 Y4 Y5 $000 $000 $000 $000 S000 $000 (125) 50 50 50 50 (120) 15 15 15 15 200 (170) 120 In each case the initial investment represents the purchase of plant and equipment whose realisable value will be 20% of initial cost, receivable in addition to the above flow at the end of the life of the project. 80 Required: For each of the three projects: (a) Calculate the accounting rate of return (based on the average investment method) (b) Calculate the payback period (c) Calculate the net present value using a discount rate of 10% (d) Calculate the internal rate of return
Voyageur has two mutually exclusive projects under consideration. The required investment for each is $15,000. The required return on each is 6%. The cash flows are as follows Year 1 2 3 4 IRR PROJECT A $2,000 4,000 7,000 10,000 15.2% PROJECT B $8,000 6,000 4,000 2,000 16.1% a) By considering the cash flows produced by the two investments; which project do you select by using the NPV criterion? Which would be selected by using IRR? b) Why do NPV and IRR select different projects? c) Which project do you select and why

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