Answered: A firm has two mutually exclusive…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 7P

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Similar questions

Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
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?
The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of 50 million on a large-scale, integrated plant that will provide an expected cash flow stream of 8 million per year for 20 years. Plan B calls for the expenditure of 15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of 3.4 million per year for 20 years. The firms cost of capital is 10%. a. Calculate each projects NPV and IRR. b. Set up a Project by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant. What are the NPV and the IRR for this Project ? c. Graph the NPV profiles for Plan A, Plan B, and Project .
A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: Time After-tax Cash Flow X After-tax Cash Flow Y 0 -$100,000 -$75,000 1 30,000 40,000 2 50,000 40,000 3 60,000 40,000 4 - 40,000 5 - 5,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firm’s WACC is 12%, what is the EAA of the project that adds the most value to the firm? Do not round intermediate calculations. Round your answer to the nearest dollar. Choose Project , whose EAA = $
A firm has two mutually exclusive investment projects toevaluate. The projects have the following cash flows: Projects X and Y are equally risky and may be repeated indefinitely. If the firm’s WACC is10%, what is the EAA of the project that adds the most value to the firm? (Round your finalanswer to the nearest whole dollar.)
A company is considering mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project B Initial outlay -$100,000 -$100,000 Year 1 $32,000 $0 Year 2 $32,000 $0 Year 3 $32,000 $0 Year 4 $32,000 $0 Year 5 $32,000 $200,000 The required rate of return on these projects is 11%. They are of equal risk. What is each project’s MIRR? Which project should be chosen? Is it possible for conflicts to exist between NPV and IRR when independent projects are being evaluated? Explain your answer
A company is considering mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project B Initial outlay -$100,000 -$100,000 Year 1 $32,000 $0 Year 2 $32,000 $0 Year 3 $32,000 $0 Year 4 $32,000 $0 Year 5 $32,000 $200,000 The required rate of return on these projects is 11%. They are of equal risk. What is each project’s payback period? What is each project’s NPV? What is each project’s IRR? What is each project’s MIRR? Which project should be chosen? Is it possible for conflicts to exist between NPV…
Queens Soliderate is considering two mutually exclusive projects. The firm, which has a 12% cost of capital, has estimated its cash flows as shown in the following table. Project A Project B Initial investment (CF0) $130,000 $85,000 Year (t) Cash inflows (CFt) 1 $25,000 $40,000 2 35,000 35,000 3 45,000 30,000 4 50,000 10,000 5 55,000 5,000 a. Calculate the NPV of each project, and assess its acceptability. b. Calculate the IRR for each project, and assess its acceptability. Required to answer. Single line text.

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Time	Cash Flow X	Cash Flow Y
0	-$80,000	-$70,000
1	30,000	35,000
2	55,000	35,000
3	70,000	35,000
4	-	35,000
5	-	5,000