Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 16QP
Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 10 percent.
| Year | AZM Mini-SUV | AZF Full-SUV |
| 0 | -$495,000 | -$960.000 |
| 1 | 352,000 | 385.000 |
| 2 | 198,000 | 464.000 |
| 3 | 165,000 | 319.000 |
- a. Based on the payback period, which project should be accepted?
- b. Based on the
NPV , which project should be accepted? - c. Based on the JRR, which project should be accepted?
- d. Based on this analysis, is incremental
IRR analysis necessary? If yes, please conduct the analysis.
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Consider the following two mutually exclusive projects:
Year
Cash Flow (X)
Cash Flow (Y)
0
1
2
3
-$20,000
8,850
9,100
8,800
2
Instruction:
Sketch the NPV profiles for X and Y over a range of discount
rates from 0% to 25%. What is the crossover rate for these two
projects (when both projects have the same NPV)? Show your
steps.
-$20,000
10,100
7,800
8,700
A▾ B I
= 18
1
Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars.
Assume the discount rate for both projects is 11 percent.
AZM
Year Mini-SUV
0
1
2
3
495,000
329,000
198,000
159,000
AZF
Full-SUV
AZM Mini-SUV
AZF Full-SUV
845,000
359,000
438,000
299,000
a. What is the payback period for each project? (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
years
years
Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 8 percent.
Year
AZMMini-SUV
AZFFull-SUV
0
–$
515,000
–$
865,000
1
333,000
363,000
2
206,000
446,000
3
163,000
303,000
a.
What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Payback period
AZM Mini-SUV
years
AZF Full-SUV
years
b.
What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
NPV
AZM Mini-SUV
$
AZF Full-SUV
$
c.
What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
IRR
AZM Mini-SUV
%
AZF…
Chapter 5 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - International Investment Projects In March 2014,...Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Calculating Payback Period and NPV Maxwell...Ch. 5 - Calculating Payback An investment project provides...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Prob. 5QPCh. 5 - Calculating IRR Compute the internal rate of...Ch. 5 - Calculating Profitability Index Bill plans to open...Ch. 5 - Calculating Profitability Index Suppose the...Ch. 5 - Cash Flow Intuition A project has an initial cost...Ch. 5 - Prob. 10QPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Problems with Profitability Index The Coris...Ch. 5 - Prob. 13QPCh. 5 - Comparing Investment Criteria Wii Brothers, a game...Ch. 5 - Profitability Index versus NPV Hanmi Group, a...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Comparing Investment Criteria The treasurer of...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QPCh. 5 - NPV and Multiple IRRs You are evaluating a project...Ch. 5 - Payback and NPV An investment under consideration...Ch. 5 - Multiple IRRs This problem is useful for testing...Ch. 5 - NPV Valuation The Yurdone Corporation wants to set...Ch. 5 - Calculating IRR The Utah Mining Corporation is set...Ch. 5 - Prob. 25QPCh. 5 - Calculating IRR Consider two streams of cash...Ch. 5 - Calculating Incremental Cash Flows Darin Clay, the...Ch. 5 - Prob. 28QPCh. 5 - Prob. 1MCCh. 5 - Seth Bullock, the owner of Bullock Gold Mining, is...
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