Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 1PS
Payback*
- a. What is the payback period on each of the following projects?
- b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
- c. If you use a cutoff period of three years, which projects would you accept?
- d. If the
opportunity cost of capital is 10%, which projects have positive NPVs? - e. “If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” True or false?
- f. If the firm uses the discounted-payback rule, will it accept any negative-
NPV projects? Will it turn down any positive-NPV projects?
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Check out a sample textbook solutionStudents have asked these similar questions
a. They payback period of project A is ___ years (round to two decimal places)
The payback period of project B is ____ years. (round to two decimal places)
According to the payback method, which project should the firm choose?
b. The NPV of project A is $___
The NPV of project B is $___
c. The IRR of project A is ___
The IRR of project B is ___
d. Make a reccomendation
Please answer the following questions in detail, provide examples whenever applicable, provide in-text citations.
(TABLE IMAGE ATTACHED)
What is the payback period on each of the above projects?
Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
If you use a cutoff period of three years, which projects would you accept?
If the opportunity cost of capital is 10%, which projects have positive NPVs?
If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” True or false?
If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? Will it turn down any positive NPV projects?
A firm evaluates a project with the following cash flows. The firm has a 2 year payback period
criteria and a required return of 11 percent.
Year
Cash flow
(OMR)
-24,000
17,000
12,000
9,000
-8,000
11,000
1
3
4
11. What is the net present value for the project?
12. What is the payback period for the project?
13. What is the discounted payback period for the project?
14. What is the profitability index for the project?
15. Given your analysis, should the fim accept or reject the project?
Chapter 5 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - (IRR) Check the IRRs for project F in Section 5-3.Ch. 5 - (IRR) What is the IRR of a project with the...Ch. 5 - (XIRR) What is the IRR of a project with the...Ch. 5 - Payback a. What is the payback period on each of...Ch. 5 - IRR Write down the equation defining a projects...Ch. 5 - Prob. 3PSCh. 5 - IRR rule You have the chance to participate in a...Ch. 5 - IRR rule Consider a project with the following...Ch. 5 - IRR rule Consider projects Alpha and Beta: The...Ch. 5 - Capital rationing Suppose you have the following...
Ch. 5 - Payback Consider the following projects: a. If the...Ch. 5 - Prob. 9PSCh. 5 - IRR Calculate the IRR (or IRRs) for the following...Ch. 5 - IRR rule Consider the following two mutually...Ch. 5 - IRR rule Mr. Cyrus Clops, the president of Giant...Ch. 5 - Prob. 13PSCh. 5 - Profitability index Look again at projects D and E...Ch. 5 - Prob. 15PSCh. 5 - Prob. 16PS
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- a) Calculate the payback period for each project. The maximum allowable payback period setby the company for all projects is 3 years. b) Calculate the net present value (NPV) for each project c) Calculate the profitability index (PI) for each project d) Calculate the internal rate of return (IRR) for each project. e) Based on the answer in (a) – (d), explain briefly which project should be accepted. f) If the project is independent project, how would your answer change in part (e) Note: I need only e,f no question answer. only e and farrow_forwarda) Calculate the payback period for each project. The maximum allowable payback period setby the company for all projects is 3 years. b) Calculate the net present value (NPV) for each project c) Calculate the profitability index (PI) for each project d) Calculate the internal rate of return (IRR) for each project. e) Based on the answer in (a) – (d), explain briefly which project should be accepted. f) If the project is independent project, how would your answer change in part (e) Note: 1. I need only e,f no question answer. only e and f 2. No need excel formulaarrow_forwardPlease help me with this question (picture below) 1. Calculate the payback period, accounting rate of return, net present value of each project. Based on your calculations, discuss whether the projects should go ahead. Assume that the target value for payback is 3 years for project A and 2 years for project B.2. List advantages and disadvantages of payback period, accounting rate of return, net present value of each project.arrow_forward
- es Lopez Company is considering three alternative investment projects below: Project 1 5.2 years $ 26,700 Project 2 5.7 Years $ 33,700 14.2% 13.1% Payback period Net present value Internal rate of return a. Payback period b. Net present value c. Internal rate of return. Which project is preferred if management makes its decision based on (a) payback period, (b) net present value, and (c) internal rate of return? Preferred Investment Project 3 4.9 Years Reason $19,700 12.5%arrow_forwardAnswer the following: 1 What is the payback period on each of the above projects? 2 Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? Why? 3 If you use a cutoff period of three years, which projects would you accept? Why?arrow_forwardA firm evaluates a project with the following cash flows. The firm has a 2 year payback period criteria and a required return of 11 percent. Year Cash flow (OMR) -24,000 17,000 12,000 9,000 1 2 3 4 -8,000 11,000 11. What is the net present value for the project? 12. What is the payback period for the project? 13. What is the discounted payback period for the project? 14. What is the profitability index for the project? 15. Given your analysis, should the firm accept or reject the project?arrow_forward
- Refer to the problem given in answering the following questions:(a) How long does it take to recover the investment?(b) If the firm's interest rate is 15%, what would be the discounted-paybackperiod for this project?arrow_forwardCompute the payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 11 percent and the maximum allowable payback is one year. Time: 0 1 2 3 4 5 Cash flow: −100 75 100 300 75 200arrow_forwardSuppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively. Time Project A Cash Flow Project B Cash Flow Use the payback decision rule to evaluate these projects, which one(s) should it be accepted or rejected? Multiple Choice 0 -35,000 -45,000 1 25,000 25,000 2 45,000 5,000 3 16,000 65,000arrow_forward
- Suppose a project with a 6% discount rate yields R5000 for the next three years. Annual operating costs amount to R1000 for each year, and the one time initial investment cost is R8000. a. Calculate the Net Present Value (NPV) of this project.b. Calculate the cost-benefit ratio for the project. c. Is the project acceptable? Motivate your answer.arrow_forwardA firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: -$25,000 today (t=0); $11,000 after one year (t=1), 17,000 after two years (t=2); and 10,000 after three years (t=3). What is the Internal Rate of Return (“IRR”) for this project?arrow_forwardA firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 28,400 1 12,400 2 15,400 3 11,400 If the required return is 15 percent, what is the IRR for this project? Should the firm accept the project?arrow_forward
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