You have been asked to analyze two investment proposals, A and B. Project A's cost is RM80,000 and the project's B cost is RM100,000. Cash flows for both projects are as follows, and the required rate of return is 10%. Year Cash Flows (RM) Cash Flows (RM) A В 1 20,000 25,000 25,000 25,000 2 25,000 3 20,000 4 25,000 25,000 5 30,000 25,000 Based on the above information, calculate for A and B, the: iii. Internal Rate of Return (using interpolation)

You have been asked to analyze two investment proposals, A and B. Project A's cost is RM80,000 and the project's B cost is RM100,000. Cash flows for both projects are as follows, and the required rate of return is 10%. Year Cash Flows (RM) Cash Flows (RM) A В 1 20,000 25,000 25,000 25,000 2 25,000 3 20,000 4 25,000 25,000 5 30,000 25,000 Based on the above information, calculate for A and B, the: iii. Internal Rate of Return (using interpolation)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
Project Y cost $8,000 and will generate net cash inflows of $1,500 in year one, $2,000 in year two, $2,500 in year three, $3,000 in year four and $2,000 in year five. What is the NPV using 8% as the discount rate?
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Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Your division is considering two investment projects, each of which requires an up-front expenditure of 15 million. You estimate that the investments will produce the following net cash flows: a. What are the two projects net present values, assuming the cost of capital is 5%? 10%? 15%? b. What are the two projects IRRs at these same costs of capital?
You have been asked to analyze two investment proposals, A and B. Project A’s cost is RM80,000 and the project’s B cost is RM100,000. Cash flows for both projects are as follows, and the required rate of return is 10%. Year Cash Flows (RM) A Cash Flows (RM) B 1 20,000 25,000 2 25,000 25,000 3 20,000 25,000 4 25,000 25,000 5 30,000 25,000 Based on the above information, calculate for A and B, the: 1. Payback period 2. Net Present Value (NPV) 3. Internal Rate of Return 4. Discounted payback
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 15,456 5,225 8,223 13,013 8,705 0 1 234 -$ 276,363 26,400 51,000 57,000 402,000 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period b. What is the payback period for Project B? Payback period c. What is the discounted payback period for Project A? Discounted payback period
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Consider the following two mutually exclusive projects: YEAR CASH FLOW (A) CASH FLOW (B)0 -$300,000 -$39,0001 20,000 18,0002 70,000 12,0003 80,000 18,0004 400,000 19,000 Whichever project you choose, if any, you require a 15 percent return on your investment.i) If you apply the payback period (PBP) criterion, which investment will you choose? Why?ii) If you apply the net present value (NPV) criterion, which investment will you choose? Why?iii) If you apply the profitability index (PI) criterion, which investment will you choose? Why?iv) If you apply the internal rate of return (IRR) criterion, which investment will you choose?Why?v) Based on your answers in (i) through (iv), which project will you finally…