1. Determine the discounted or internal rates of return for both projects. Round answers to 3 decimals. 2. Determine the net present value of each project using an 11% discount rate. 3. Determine the profitability index of each project also. Round answers to 2 decimals.

1. Determine the discounted or internal rates of return for both projects. Round answers to 3 decimals. 2. Determine the net present value of each project using an 11% discount rate. 3. Determine the profitability index of each project also. Round answers to 2 decimals.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 15P

See similar textbooks

Related questions

Q: Pound Industries is attempting to select the best of three mutually exclusive projects. The initial…

A: Internal Rate-of-Return or IRR is rate that discounts Net Present Value(NPV) of an investment…

Q: (a) Assuming a discount rate of 7 per cent, what is the NPV of the two projects? Based on the NPV…

A: Net present value (NPV) of an alternative/project refers to the variance between the initial…

Q: Calculate the NPV and IRR for the following project with a discount rate of 10% - ncf yr 0 =…

A: Net present value (NPV) refers to computation of present values of all the cash inflows and outflows…

Q: A company is considering two projects. The discount rate is 10 percent, and the projects' cash flows…

A: Net present value (NPV) is the difference between the present value of cash inflows and cash…

Q: Use the information provided to answer the questions Calculate the Accounting Rate of Return (on…

A: NPV is a technique in capital budgeting which help in decision making on the basis of future cash…

Q: Compute the Payback Period, Discounted Payback Period, Net Present Value, Internal Rate of Return,…

A: Capital projects are those that are spread across several years and requires a significant initial…

Q: The initial investment, profit and expenses of an engineering project are shown in the cash flow…

A: Discounted payback period shows the the recover period for cash flows adjusted with time value of…

Q: Compute the (a) net present value, (b) internal rate of return (IRR), (c) modified internal rate of…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: Suppose the following two independent investment opportunities are available to Fitz, Inc. The…

A: Profitability Index is also one of the capital budgeting techniques. It is defined as the benefits…

Q: 15% for 1, 2, 3, and 4 years are 0.870, 0.756, 0.658, and 0.572, respectively. Determine (a) the…

A: Average rate of return = Average net income/Average investment Average investment = Initial…

Q: Wainright Co. has identified an investment project with the following cash flows. Year Cash…

A: Working note:

Q: a. Consider the following mutually exclusive project below. Whichever project chosen, a 15 percent…

A: The discounted payback period is a capital budgeting procedure used to determine the profitability…

Q: Consider the following cash flows, for four different projects: (given) (a) Calculate the…

A: Capital budgeting techniques are the methods used to evaluate the profitability of investments in…

Q: (a) For a MARR of 9%, compute the net present worth for each project, and determine the…

A: Period Project- A Project- B Project- C 0 $ (150) $ (120) $ 150 1…

Q: 1. Determine the Net present value of the investment. (use 3 decimal places for the PV factor) 2.…

A: Net present value = Present value of cash inflows - Initial investment Payback period = Years…

Q: A company is considering three alternative investment projects with different net cash flows. The…

A: >Present value of net cash flows are the discounted future net cash flows that were converted to…

Q: Profitability index. Given the discount rate and the future cash flow of each project listed in…

A: PI formula: PI=PV of future cashflowinitial investment

Q: Use the information provided below to calculate the following. Note: Where applicable, use the…

A: Net present value is the difference between the present value of cash inflow and cash outflows.

Q: Sienna plc has deduced the net present value of a potential investment project at two discount…

A: Internal rate of return (IRR) is the discounting rate at which present value of cash flows is equal…

Q: REQUIRED Study the information provided below and calculate the following: 3.1 Payback Period of…

A: Payback period is the amount of time required to recover initial investment. Payback period =Initial…

Q: The table below lists four mutually exclusive projects, Which project should be selected based on…

A: Given that, Life of project ; A = 8 years B = 7 years C = 6 years D = 5 years Total operating…

Q: Use the information provided below to calculate the following. Note: Where applicable, use the…

A: Net present value is the difference between the present value of cash inflows and present value of…

Q: Sketch the NPV profiles for X and Y over a range of discount rates from zero to 25 percent (take 0%,…

A: Since you have posted a question with multiple subparts, we will solve the first three sub-parts for…

Q: a. Determine the net present value of the projects based on a zero-discount rate and comment on your…

A: Net present value (NPV) is used to determine the present value of all future cash flows. Net present…

Q: Project Y has following cash flows: C0 = -800, C1 = +6,000, and C2 = -6,000. Calculate the IRRs for…

A: Year Cash Flow 0 -800 1 6,000 2 -6,000

Q: Check my Required information a. What is the net present value of the project? (Negative amount…

A: NPV is capital budgeting technique used to evaluate performance of projects. It is arrived at by…

Q: Profitability index. Given the discount rate and the future cash flow of each project listed in the…

A: Information Year Project A Project B 0 -1800000 -2500000 1 100000 1250000 2 300000 1050000…

Q: Consider the following set of independent investment projects: (a) For a MARR of 10%, compute the…

A: Compounding and discounting are two different techniques which are used to measure the effect of…

Q: The NPV of a project when discounted using a discount rate of 6% is positive $ 40,000. When the same…

A: Internal Rate of return (IRR) is the rate at which the NPV is zero.

Q: Compute the (a) net present value, (b) internal rate of return (IRR), (c) modified internal rate of…

A: Given information: WACC is 13% Calculation of NPV, IRR, MIRR: Excel workings:

Q: How would I solve this?

A: “Hey, since there are multiple questions posted, we will answer first question. If you want any…

Q: The Michner Corporation is trying to choose between the following two mutually exclusive design…

A: Profitability index is the ratio of the present value of cash flow to the initial investment and…

Q: An Organization invests BDT. 10,00,000 for a project and the discount rate is 12%. After analyzing…

A: The net present value = Difference of the present value of (Outflow and inflow). it helps the…

Q: Determine (a) the net present value of the project and (b) the present value index. If required, use…

A: We are given the cash flow figures and the annual cash inflow of 6250 is in the form of an annuity.…

Q: Consider the following sets of investment projects: (a) Classify each project as either simple or…

A: Step 1: A project is a simple project when the type of cash flow does not change in the…

Q: calculations and round your answers to 2 decimal places, e.g., 32.16.) p. What is the NPV for each…

A: Project A Year Cash Flow Cumulative Cash Flow 1 44000 44000 2 62000 106000 3 79000…

Q: Percentages need to be entered in decimal format, for instance 3% would be entered as .03. West…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: Which of the following comes closest to the net present value (NPV) of a project whose initial…

A: Initial investment = $5 Cash flow at the end of year 2 (CF2) = $3 Cash flow at the end of year 4…

Q: Daisy's Creamery Inc. is considering one of two investment options. Option 1 is a $75,000 investment…

A: The present value of cash flows, $81,344 is computed by adding the product of the cash inflows,…

Q: Internal rate of return and modified intermal rate of return. Quark Industries has three potential…

A: A method of capital budgeting that helps to eliminate the issue which arises from the existence of…

Q: Internal rate of return and modified internal rate of return. Quark Industries has three potential…

A: The given problem can be solved using IRR and MIRR function in excel.

Question

please help me numbers 2, 3, and 4, thank you

George Company is evaluating two mutually exclusive projects with 3-year
lives. Each project requires an investment of P50,000. The projects have the
following "net returns" at the end of each year.
Project 2
P30,000
Project 1
Year 1
P10,000
2
20,000
20,000
3
30,000
10,000
REQUIRED:
1. Determine the discounted or internal rates of return for both projects. Round
answers to 3 decimals.
2. Determine the net present value of each project using an 11% discount rate.
3. Determine the profitability index of each project also. Round answers to 2
decimals.
4. What can you conclude about the effect of timing of the cash flows has upon a
project's IRR and net present value?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Money Management and Achieving Financial Goals

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
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?
In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for 2 years) and Project F (which lasts for 4 years): The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital. (1) What is each projects initial NPV without replication? (2) What is each projects equivalent annual annuity? (3) Apply the replacement chain approach to determine the projects extended NPVs. Which project should be chosen? (4) Assume that the cost to replicate Project T in 2 years will increase to 105,000 due to inflation. How should the analysis be handled now, and which project should be chosen?
Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.
Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years. What is the NPV using 8% as the discount rate?
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment or $28.000 and is expected to generate the following cash flows: If the discount rate is 5% compute the NPV of each project and make a recommendation of the project to be chosen.