a. Calculate the payback period for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. Calculate the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which project, if any, should the company accept?

a. Calculate the payback period for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. Calculate the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which project, if any, should the company accept?

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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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.
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?
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?
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: The companys capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the computed amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected. 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value table appearing in Exhibit 2 of this chapter. 5. Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4). 7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). 8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
Janina, Incorporated, has the following mutually exclusive projects. Year Project A Project B 0 −$ 30,000 −$ 33,000 1 17,000 18,000 2 13,500 12,000 3 3,900 13,500 a-1. Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) a-2. If the company's payback period is two years, which, if either, of these projects should be chosen? multiple choice 1 Project A Project B Both projects Neither project b-1. What is the NPV for each project if the appropriate discount rate is 15 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Novell, Inc., has the following mutually exclusive projects. Year Project A Project B 0 –$21,000 –$24,000 1 12,500 13,500 2 9,000 10,000 3 3,000 9,000 a-1. Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) a-2. If the company's payback period is two years, which, if either, of these projects should be chosen? multiple choice 1 Project A Project B Both projects Neither project b-1. What is the NPV for each project if the appropriate discount rate is 17 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Quattro, Inc. has the following mutually exclusive projects available. The company has historically used a four-year cutoff for projects. The required return is 11 percent. The payback for Project A is ____ while the payback for Project B is ____. The NPV for Project A is _____ while the NPV for Project B is ____. Which project, if any, should the company accept? Year Cash Flow (A) Cash Flow (B) 0 -$50,000 -$60,000 1 6,000 7,000 2 9,000 12,000 3 20,000 22,000 4 25,000 20,000 Can the calculator and excel file be provided?
Quattro, Inc. has the following mutually exclusive projects available. The company has historically used a four-year cutoff for projects. The required return is 11 percent. Year cash flow (A) cash flow (B) 0 -$82,000 -$125,000 1 15,700 38,600 2 18,300 33,400 3 23,900 31,200 4 26,200 27,500 5 32,100 24,000 Calculate the payback for Project A and the payback for Project B. The NPV for Project A and the NPV for Project B. Which project, if any, should the company accept?
Bausch Company is presented with the following two mutually exclusive projects. The required return for both projects is 16 percent. Year Project M Project N 0 –$136,000 –$359,000 1 63,900 150,500 2 81,900 184,000 3 72,900 135,500 4 58,900 114,000 a. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) PROJECT M IS 36.69% PROJECT N IS 24.21% b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) PROJECT M IS $59,185.14 PROJECT N IS $57,253.65 c. Which, if either, of the projects should the company accept?
Bausch Company is presented with the following two mutually exclusive projects. The required return for both projects is 20 percent. Year Project M Project N 0 -$142,000 -$363,000 1 64,300 148,500 2 82,300 188,000 3 73,300 133,500 4 59,300 118,000 a. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which, if either, of the projects should the company accept? % a. Project M % Project N b. Project M Project N c. Accept project
Quattro, Inc. has the following mutually exclusive projects available. The company has historically used a four-year cutoff for projects. The required return is 11 percent. Year Cash Flow (A) Cash Flow (B) 0 −$50,000 −$60,000 1 6,000 7,000 2 9,000 12,000 3 20,000 22,000 4 25,000 20,000 The payback for Project A is ____ while the payback for Project B is ____. The NPV for Project A is _____ while the NPV for Project B is ____. Which project, if any, should the company accept?
Bausch Company is presented with the following two mutually exclusive projects. The required return for both projects is 13 percent. Year Project M Project N 0 –$144,000 –$351,000 1 63,100 154,500 2 81,100 176,000 3 72,100 139,500 4 58,100 106,000 a. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which, if either, of the projects should the company accept?