Excel Risk Assignment 2 Spreadsheet (3)

9.36 The fouT mutuzlly exclusive alternatives below are being compared using the B/C method. What altemative, if any, should be selected? Initial Investment, Incremental B/C When Compared With Altemative Altemative S Millions BC Ratio K L 20 0.40 --- 25 33 0.96 122 K 1.42 2.14 --- 0.72 0.80 0.08-- 45 0.39 I. Activate Winde PC settings to DFocus SAN FRACISCO.CA

Four alternatives (Alternatives A, B, C, and D) described below are being evaluated. Incremental Rate of Return, %, When Compared with Alternative B Alternative A B C D Initial Investment, $ - 30,000 - 71,000 - 95,000 - 110,000 Overall Rate of Return. % 16.9 15 17.5 10 A 18.7 19.2 16.7 15 C 10 1) A) If the alternatives are independent, which one(s) should be selected at a MARR of 15% per year? There is no budget limit. B) If the alternatives are mutually exclusive (ME), which one should be selected at a MARR of 17% per year? {Hint: Consider Do Nothing (DN)} 2) B/C Analysis - Single Project: Calculate the conventional B/C ratio for a county government project that is predicted to have the following cash flows: • Costs of $1,900,000 per year • Benefits of $2,100, 000 per year Disbenefits of $250,000 per year. Should the county government invest in that project? Please explain your answer. (meaning: explain why you think the government should or should not invest in the project). 3)…

Five alternatives are being evaluated by the incremental rate of return method. Incremental Rate of Return, % Initial Overall ROR Alternative Investment, $ versus DN, % A B C D E -25,000 -35,000 -40,000 -60,000 -75,000 A 9.6 27.3 9.4 35.3 25.0 15.1 38.5 24.4 C 13.4 46.5 27.3 D 25.4 6.8 E 20.2 (SO2PI1) If the projects above are mutually exclusive and the MARR is 20% per year, the best alternative is Select one: О а. В O b. C O c. D O d. E

Based on the information below  which projects will we choose based on weighted average profitabiltity Index if we only have OMR500,000 to invest? Project NPV Investment PI A 130,000 200,000   B 241,250 225,000   C 294,250 275,000   D 262,000 250,000                     Select one: a. WAPI AD b. WAPI AB c. WAPI BD d. WAPI BC

1. The president of the Martin Company is considering two alternative invest- ments, X and Y. If each investment is carried out, there are four possible outcomes. The present value of net profit and probability of each outcome follow: Investment X Investment Y Net Present Net Present Outcome Value Probability Outcome Value $12 million Probability 0.1 $20 million 0.2 A 8 million 10 million 2 0.3 B 9 million 0.3 3 0.4 6 million 0.1 3 million 0.1 D 11 million 0.5 a. What are the expected present value, standard deviation, and coefficient of variation of investment X? b. What are the expected present value, standard deviation, and coefficient of variation of investment Y? c. Which investment is riskier? d. The president of the Martin Company has the utility function

Question 2 You must choose between two investments, X and Y . The profitability index (PI), net present value (NPV) and internal rate of return (IRR) of the two investments are as follows: Criteria Investment X Investment Y NPV R44 000 −R22 000 PI 1,945 0,071 IRR 16,00% 8,04% Which investment(s) should you choose, taking all the above criteria into consideration, if the cost of capital is equal to 12% per year? [1] X [2] Y [3] Both X and Y [4] Neither X nor Y [5] Too little information to make a decision 17 DSC1630

Consider the following two projects: Project Year 0 Year 1 Year 2 Cash Flow Cash Flow Cash Flow A B - 100 -73 40 30 30 The profitability index for project B is closest to: OA. 25.99 B. 0.1 O C. 17.33 O D. 0.17 50 Year 3 Cash Flow 60 30 Year 4 Cash Flow N/A 30 Discount Rate 0.15 0.15

KLA Cost Ziege Systems is considering the following independent projects for the coming year Project Required Investorent Rate of Return Risk A $4 million 12.25% Hish High $5 million Low B C DEFGH $3 million $2 million $6 million $5 million $6 million $3 million 500 14.75 10.25 9.75 13.25 13.25 7.75 12.25 million Average High Average Low Low } If Ziege con only invest a total of $13 million what would be the dollar size of its capital budget? $ million What would be the dollar size of its capital budget? $

Suppose the following two independent investment opportunities are available to a company. The appropriate discount rate is 8 percent. Year O 1 2 3 Project Alpha -$4,500 b. 2,300 2,200 1,450 a. Compute the profitability index for each of the two projects. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project Alpha Project Beta Project Beta -$ 6,100 1,350 4,500 4,000 Profitability Index Which project(s), if either, should the company accept based on the profitability index rule? Project Alpha O Project Beta Neither project O Both projects

Consider the following two projects: Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Discount C/F C/F C/F Alpha -79 20 Beta -80 25 20 225 C/F C/F C/F C/F C/F Rate 30 25 22 35 40 N/A N/A 17% 25 25 25 25 14% Assume that projects Alpha and Beta are mutually exclusive. The correct investment decision and the best rationale for that decision is to O A. invest in project Beta, since NPV > 0. Beta OB. invest in project Beta, since IRR IRRA C. invest in project Beta, since NPV > NPV Beta > 0. Alpha < NPV Beta Alpha OD. invest in project Alpha, since NPV

Saved A company is considering the following three Investment projects (Ignore income taxes.): Investment required Present value of cash inflows Project C $46,800 $ 51,948 Project D $ 53,300 $ 61,828 Project E $110,500 $ 120,445 Rank the projects according to the profitablity index, from most profitable to least profitable. Multiple Choice D. C. E C.E. D E. C. D E. D. C

Salalah company management is considering two competing investment Projects A and B.YearInitial Investment 12345Project A 8000 2750 2750 2750 2750 2750Project B 8000 3000 3000 3000 3000 3000DISCOUNT RATE 5.05%Q1) Use the information below and help the management in choosing the most desirable Project using all the following techniques:1) Payback Period Technique.2) Discounted Payback Period Technique.3) Net Present Value Technique4) Profitability Index Technique.Q2) Based on your solution or answer to question 1, comment as to which proposal is better and why?

Enclosure Kit Corral... 6.36 The four alternatives described below are being evaluated. This question has three parts Part 2: If the proposals are mutually exclusive, which one should be selected at a MARR of 14.5% per year? Incremental Rate of Return, %, When Compared with Alternative Initial Overall Rate Alternative C Investment, $ Return, % -60,000 11.7 В -90,000 22.2 43.3 -140,000 17.9 22.5 10.0 -190,000 15.8 17.8 10.0 10.0 C1

Consider the following two projects: Project Year 0 Year 1 Year 2 Year 3 Year 4 Discount Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Rate A - 100 40 50 60 N/A 0.18 B - 73 30 30 30 30 0.18 Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to A. invest in project B, since NPV, > NPV, A B. invest in project A, since NPV, > 0. OC. invest in project A, since NPV, IRR, A'