Project A - 10,000 5000 4000 3000 Project B - 10,000 4000 3000 10,000 Project C - 10,000 3000 4000 5000 O A. Project A OB. Project B O C. Neither project, - both have a NPV of 0. O D. Both projects, - both have positive NPV. O E. Neither project,- both have negative NPV. Project D - 10,000 4000 4000 4000 Project E - 10,000 2000 6000 10,000 Time 0 Time 1 Time 2 Time 3 If WiseGuy Inc is choosing one of the above mutually exclusive projects (Project A or Project B), given a discount rate of 8%, which should the company choose?

Project A - 10,000 5000 4000 3000 Project B - 10,000 4000 3000 10,000 Project C - 10,000 3000 4000 5000 O A. Project A OB. Project B O C. Neither project, - both have a NPV of 0. O D. Both projects, - both have positive NPV. O E. Neither project,- both have negative NPV. Project D - 10,000 4000 4000 4000 Project E - 10,000 2000 6000 10,000 Time 0 Time 1 Time 2 Time 3 If WiseGuy Inc is choosing one of the above mutually exclusive projects (Project A or Project B), given a discount rate of 8%, which should the company choose?

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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The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2:Year 0123 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100a. If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept?b. If the firm applies the Net Present Value (NPV) decision rule, which project should it take?c. Are your answers in (a) and (b) different? Explain why?
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 1 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flows (P2) -$16,000 9,100 9,100 9,100 a. If the discount rate is 10 percent and the firm applies the Net Present Value (NPV) decision rule, which project should the firm accept? b. If the firm applies the profitability index (PI) decision rule, which project should it take?
7. IRR (S5.3) Calculate the IRR (or IRRS) for the following project: Co C₁ +3,500 -3,000 For what range of discount rates does the project have a positive NPV? +4,000 C3 -4,000
Consider the following teo mutually exclusive projects X 20600, 9000 9400 8950 Y 20600 10400 7950 8850 calculate the irr for each project, what is the crossover rate, what is the npv of the projects x and y with a discount rate of 0, 15, and 25%
11. IRR rule (S5.3) Consider the following two mutually exclusive projects: Cash flows ($) Project A B Co -50 -50 C₁ +60 0 C₂ +60 0 0 +140 Page 142 a. Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and discount rate on the horizontal axis. b. What is the approximate IRR for each project? c. In what circumstances should the company accept project A? d. Calculate the NPV of the incremental investment (B – A) for discount rates of 0%, 10%, and 20%. Plot these on your graph. Show that the circumstances in which you would accept A are also those in which the IRR on the incremental investment is less than the opportunity cost of capital.
Whispering Inc. now has the following two projects available: Project Initial CF After-tax CF1 After-tax CF2 1 2 PMT1 PMT2 $ $ -11,634.42 Project 1 -3,290.48 5,300 3,800 Assume that RF = 5.1 percent, risk premium = 10.6 percent, and beta = 1.2. Use the EANPV approach to determine which project Whispering Inc. should choose if they are mutually exclusive. (Round cost of capital and final answers to 2 decimal places, e.g.17.35% or 2,513.25.) 1673.12 1479.74 6,200 should be chosen. 3,200 After-tax CF3 9,600
Consider the following two mutually exclusive projects: If the discount rate is 10%, what are the NPV of Project A and the IRR of Project B? Cash Flows ($) Project C0 C1 C2 C3 A -90 +60 +50 0 B -100 0 0 +140 Multiple Choice Then NPV for project A is $5.9 and the IRR for project B is 11.9% Then NPV for project A is $8 and the IRR for project B is 9% Then NPV for project A is $20 and the IRR for project B is 11.9% Then NPV for project A is $5.9 and the IRR for project B is 11.9%
Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$56,000 -$56000 1 32,000 19,400 2 26,000 23,400 3 19,000 28,000 4 13,200 25,400 Over what range of Discount rates would you choose Project A? Project B? (Please list percentages rounded to 2 decimal places. Hint: The answer is not the same as the IRR.) Project A ____________% Project B ____________% At what discount rate would you be indifferent between these two projects? ____________%
Tri Star, Inc., has the following mutually exclusive projects: Year Project A Project B 0 –$ 13100 –$ 8500 1 7300 3200 2 6300 2700 3 2,100 5100 Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) If the appropriate discount rate is 9 percent, what is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Project A Time 0 - 10,000 Time 1 5,000 Time 2 Time 3 4,000 3,000 Project B - 10,000 4,000 3,000 10,000 If WiseGuy Inc. is choosing one of the above mutually exclusive projects (Project A or Project B), given a discount rate of 8%, which should the company choose? OA. Project A OB. Project B OC. Neither project-both have negative NPV. OD. Both projects-both have positive NPV.
ABC Company has the following mutually exclusive projects. Year Project A Project B 0 -$19,520 -$16,800 1 11,500 9,500 2 8,750 7,100 3 2,500 3,500 If the company uses the NPV method to rank these two projects, which project should be chosen if the appropriate discount rate is 15 percent?
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 0 1 2 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100 If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept? If the firm applies the Net Present Value (NPV) decision rule, which project should it take? Are your answers in (a) and (b) different? Explain why?

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