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Q.2. For an investor with a minimum rate of return of 8.0%: a) Rank the following non-mutually exclusive alternative. b) For a time zero budget of $1,400, which of the projects would you select? Use NPV, GRR and PI analysis.
|
Year |
0 |
1 |
2 |
3 |
4 |
|
Project A |
-$200 |
$75 |
$75 |
$75 |
$75 |
|
Project B |
-$450 |
$155 |
$155 |
$155 |
$155 |
|
Project C |
-$700 |
$250 |
$250 |
$250 |
$250 |
|
Project D |
-$950 |
$380 |
$330 |
$280 |
$230 |
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- Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site. Gardial Fisheries is considering two mutually exclusive investments. The projects expected net cash flows are as follows: a. If each projects cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice? b. Construct NPV profiles for Projects A and B. c. What is each projects IRR? d. What is the crossover rate, and what is its significance? e. What is each projects MIRR at a cost of capital of 12%? At r = 18%? (Hint: Consider Period 7 as the end of Project Bs life.) f. What is the regular payback period for these two projects? g. At a cost of capital of 12%, what is the discounted payback period for these two projects? h. What is the profitability index for each project if the cost of capital is 12%?Value/other investment criteria (i Saved Help Save Consider the following two projects: Cash flows Project A Project B -$270 CO -$270 С1 115 143 C2 115 143 Сз 115 143 C4 115 a. If the opportunity cost of capital is 10%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 10%. Which one would you choose if the cost of capital is 15%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h-1. If the opportunity cost of capital is 10%, what is the profitability index for each project? h-2. Is the project with the highest profitability index also the one with the highest NPV? h-3. Which measure should you use to choose between the projects? Complete this question by…Consider the following two mutually exclusive investment projects:Project Cash Flowsn A B 0 -$4,000 -$8,5001 $400 $11,5002 $7,000 $400Assume that the MARR = 15%.(a) Using the NPW criterion, which project would you select?(b) On the same chart, sketch the PW(i) function for each alternative fori = 0% and 50%. For what range of i would you prefer Project B?
- 32. Consider the following three investments. Projects co. 2,500 2,500 2,500 Outflow c2 3,305 1,540 с1 1,540 2,875 inflow 1 y inflow 2 The discount rate is 12 % Compute the NPV & IRR for each project If you have to select one, which one would you select? Why?Consider the following two projects: Cash flows Project A Project B C0�0 −$ 240 −$ 240 C1�1 100 123 C2�2 100 123 C3�3 100 123 C4�4 100 a. If the opportunity cost of capital is 8%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 8%. c. Which one would you choose if the cost of capital is 16%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h. If the opportunity cost of capital is 8%, what is the profitability index for each project? i. Is the project with the highest profitability index also the one with the highest NPV? j. Which measure should you use to choose between the projects?The following information is available on two mutually exclusive projects. Project Year 0 Year 1 Year 2 Year 3 Year 4 A -$700 $200 $300 $400 $500 B -$700 $600 $300 $200 $100 If the required rate of return is 10%, which project should be selected using the internal rate of return (IRR) method? Group of answer choices A B
- The following information is available on two mutually exclusive projects. Project Year 0 Year 1 Year 2 Year 3 Year 4 A -$700 $200 $300 $400 $500 B -$700 $600 $300 $200 $100 If the required rate of return is 10%, which project should be selected using the net present value (NPV) method? Group of answer choices A BConsider projects A and B with the following cash flows: C0 C1 C2 C3 A − $ 27 + $ 16 + $ 16 + $ 16 B − 52 + 27 + 27 + 27 a-1. What is the NPV of each project if the discount rate is 10%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) a-2. Which project has the higher NPV? b-1. What is the profitability index of each project? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b-2. Which project has the higher profitability index? c. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects? d. Which project is most attractive to a firm that is limited in the funds it can raise?Suppose that you could invest in the following projects but have only $24,480 to invest. Which projects would you choose? Project Cost NPV w $ 7,970 $ 3,000 x 10,990 7,530 y 8,500 4,280 z 6,750 3,890 You should invest in project(s)?
- A2. (PaybackandNPV)Threeprojectshavethecashflowsgivenhere.Thecostofcapitalis10%. a. Calculate the paybacks for all three projects. Rank the projects from best to worst based on their paybacks. Calculate the NPVs for all three projects. Rank the projects from best to worst based on their NPVs c. Why are these two sets of rankings different? YEAR 0 1 2 3 4 5Project 1 −10 4 3 2 1 5 Project 2 −10 1 2 3 4 5 Project 3 −10 4 3 2 1 10Pm.3 Find out the profitability index (PI) of the following project assuming the required rate of return is 8%. Will you accept the project? Why? year 0 1 2 3 4 5 Cash Flow ($) -250,000 50,000 40,000 120,000 80,000 45,000 Group of answer choices Accept the project because the PI is equal to 1.06, which is larger than 0. Accept the project because the PI is equal to 0.98, which is larger than 0. Reject the project because the PI is equal to 1.06, which is larger than 1. Reject the project because the PI is equal to 0.98, which is lower than 1. Accept the project because the PI is equal to 1.06, which is larger than 1.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
