5.7. Projects A through E are being considered by an investor. They all are ten-year projects andthe MARR is 10%. Projects A and B are mutually exclusive. Projects C and D are mutuallyexclusive and contingent on the acceptance of B. Project E is contingent on the acceptanceof A.Project NPV ERRCapital investment$5,000$20,000$15,000$30,000B8%$20,000$15,000$10,000$22,000$15,000DE(a) List all of the possible mutually exclusive alternatives.(b) Which alternative is the best economic choice with unlimited capital?(c) Which alternative is the best economic choice with a capital constraint of $40,000?

Capital rationing is a concept that refers to analyzing the present value of inflows and outflows to…

5.7. Projects A through E are being considered by an investor. They all are ten-year projects and the MARR is 10%. Projects A and B are mutually exclusive. Projects C and D are mutually exclusive and contingent on the acceptance of B. Project E is contingent on the acceptance of A. Project NPV ERR Capital investment $20,000 $15,000 $30,000 $22,000 $15,000 $5,000 8% $20,000 $15,000 $10,000 D E (a) List all of the possible mutually exclusive alternatives. (b) Which alternative is the best economic choice with unlimited capital? (c) Which alternative is the best economic choice with a capital constraint of $40,000?

5.7. Projects A through E are being considered by an investor. They all are ten-year projects and the MARR is 10%. Projects A and B are mutually exclusive. Projects C and D are mutually exclusive and contingent on the acceptance of B. Project E is contingent on the acceptance of A. Project NPV ERR Capital investment $20,000 $15,000 $30,000 $22,000 $15,000 $5,000 8% $20,000 $15,000 $10,000 D E (a) List all of the possible mutually exclusive alternatives. (b) Which alternative is the best economic choice with unlimited capital? (c) Which alternative is the best economic choice with a capital constraint of $40,000?

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter11: The Basics Of Capital Budgeting

Section: Chapter Questions

Problem 11P: CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S requires an initial outlay at t =...

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EQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: Time Cash Flow X Cash Flow Y 0 (80,000) (75,000) 1 40,000 35,000 2 60,000 35,000 3 70,000 35,000 4 _ 35,000 5 _ 5,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firms WACC is 10%, what is the EAA of the project that adds the most value to the firm? (Round your final answer to the nearest whole dollar.)
EQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate; both can be repeated indefinitely. The projects have the following cash flows: Time Cash Flow X Cash Flow Y 0 100,000 70,000 1 30,000 30,000 2 50,000 30,000 3 70,000 30,000 4 30,000 5 10,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firms WACC is 12%, what is the EAA of the project that adds the most value to the firm? (Round your final answer to the nearest whole dollar.)
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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.
Consider the following fourmutually exclusive projects: Project J, K, L, and M. Assume that the investment in each project gets perpetually renewed (all the projects are perpetual). The cost of capital is 16%. Rank the projects according to profitability J K L M Initial investment 49,000 75,000 65,000 35,000 Annual cash flow 21,000 8,000 16,000 13,000 Lifecycle (years) 6 26 14 5s You are going to want to find the NPV and EAC of the cash flows. Since all of the cash flows are the same, you can use the PV function. Pay attention to the sign of the cash flows! You can also use the RANK function to rank the EACs for the four projects.
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33. Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $14,200 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $7,400 and $13,600 at the end of Years 1 and 2, respectively. In addition, Project S can be repeated at the end of Year 2 with no changes in its cash flows. Project L has an expected life of 4 years with after-tax cash inflows $6,000 at the end of each of the next 4 years. Each project has a WACC of 9%. What is the equivalent annual annuity of the most profitable project? Do not round your intermediate calculations.
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Mr Ali has an option of investing in one project from the proposed three different projects. The initial investment and cash flows are given below. (r = 12%)years Cf – project 1 Cf – project 2 Cf – project 30 (10,000) (28,000) (22,000)1 1000 3000 40002 880 7000 10003 6000 8000 10004 4000 12000 90005 2000 7500 115006 3650 6400 8900 a. Calculate payback for all three projectsb. Calculate discounted payback for all three projects c. Calculate NPV for all three projects d. Calculate profitability index for all three projects e. Calculate IRR for all three projects f. Write a detailed comment on which project Mr Ali must invest on the basis of above calculated criteria’s and why he must ignore the other projects.
A business has £18 million available for capital investment in the current year, but has the following five projects: Project Initial Investment £m NPV £m A 2.5 0.750 B 5.0 2.575 C 10.0 2.350 D 2.5 0.500 E 10.0 0.825 Which projects should the company choose? Projects can be scaled down (divisible) if necessary.
Shaylee Corp has $2.00 million to invest in new projects. The company’s managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Project A Project B Project C Project D Initial investment $ 434,000 $ 249,000 $ 739,000 $ 964,000 Present value of future cash flows 784,000 434,000 1,219,000 1,579,000 Required: 1. Is Shaylee able to invest in all of these projects simultaneously? 2-A. Calculate the profitability index for each project. 2-B. What is Shaylee’s order of preference based on the profitability index?