A. Kedah Airport Bhd is considering two mutually exclusive projects. The cash flows of theprojects are as follows:Project A-RM4,000,000Project B-RM4,000,000Year1RM1,000,000RM1,000,000RM1,000,000RM1,000,000RM1,000,000RM1,000,0004.RM1,000,000RM11,000,000Compute the net present value (NPV) and internal rate of return(IRR) for the above two projects, assuming a 13% required rate ofreturn.YOUR ANSWER START HERE..Based in your answer in (A), explain the ranking conflict between IRR and NPVfor project A and project B.

IRR is the rate of return at which NPV is zero.

Answered: A. Kedah Airport Bhd is considering two…

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...

See similar textbooks

Similar questions

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?
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.
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 01234 Project S-$1,000$869.10$260$5$10Project L-$1,000$0$250$420$831.87 The company's WACC is 8.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $894.60 $240 $15 $15 Project L -$1,000 $0 $250 $380 $836.66 The company's WACC is 8.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.   %
CRAYON corporation has identified the following two mutually exclusive projects: YEAR Cash flow ( A) Cash flow ( B) 0 -$300,000 -$300,000 1                  68,950                  135,000 2                  83,900                 105,500 3                  93,200                  75,000 4                  105,600                  55,600 5                  115,600                45,600 What is the IRR for each of this project (range: 10-16%)? Using the IRR decision rule, which project should the company accept? How do you interpret IRR of a project? If the required return is 15%, what is the NPV of these projects? Which project will the company choose if it applies the NPV decision rule? How do you interpret NPV of a project? Calculate the Payback period and discounted pay back period of these projects! Which project should the company accept? What are the differences of payback period and discounted payback…
Bates & Reid, LLC, has identified two mutually exclusive projects, A and B. Project A has a NPV of $14,050.47. Project B has cash flows as described below.             Year                             Cash Flow B                0   -$77,000                                                  1 35,000                2 25,000                3 25,000                4 25,000 If the WACC is 8%, then B’s NPV is _______ and therefore the firm should accept _________ $11,337.55; project B because NPVA > NPVB. $15,062.43; project B because NPVA < NPVB. $15,062.43; project A because NPVA < NPVB. The projects are equally profitable. $11,337.55; project A because NPVA > NPVB.
a company is deciding between two mutually exclusive projects. the cash flows are shown below. year 0 project a -$1,000 project b -$1,000 ywar 1 project a 550 project b 400 year 2 project a 550 projecy b 600 year 3 project a 550 project b 900 if the cosy of capital is 10% which project should the compsny select
ZEF Incorporated is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects—M and N. The relevant cash flows for each project are shown in the following table. The firm’s cost of capital is based on answer in question a) above Project M (RM) Project N (RM) Initial Investment (RM) 28,500 27,000 Year Cash Flow (RM) 1 10,000 11,000 2 10,000 10,000 3 10,000 9,000 4 10,000 8,000 e. Calculate the internal rate of return (IRR) for each project.
ZEF Incorporated is in the process of choosing the better of two equal-risk, mutually exclusive capital expenditure projects—M and N. The relevant cash flows for each project are shown in the following table. The firm’s cost of capital is based on answer in question a) above Project M (RM) Project N (RM) Initial Investment (RM) 28,500 27,000 Year Cash Flow (RM) 1 10,000 11,000 2 10,000 10,000 3 10,000 9,000 4 10,000 8,000 b. Calculate the payback period for each project. The maximum allowable payback period set by the company for all projects is 3 years.Note: No hand writing !
Alberta Limited is considering two mutually exclusive projects. Relevant cash flows for each project are shown in the table below. Year Project Ajax Net Cash Flow Project Eden Net Cash Flow 0 $55 000 $60 000 1 $22 000 $35 000 2 $22 000 $25 000 3 $22 000 $20 000 4 $22 000 $15 000 I. Define ‘mutually exclusive projects’ and ‘independent projects’. ii. Determine the payback period of each project. If the company has a maximum acceptable payback period of three years, in which project should the company invest? iii. Suppose the company has a cost of capital of 12%. Determine the net present value of each project. Which project would be preferred in this situation and why? iv.Determine the profitability index of both projects. Which project would be preferred in this situation? Why?
Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 66,000 −$ 66,000 1 42,000 28,400 2 36,000 32,400 3 24,000 38,000 4 15,200 24,400 a-1. What is the IRR for each of these projects? a-2. If you apply the IRR decision rule, which project should the company accept? b-1. Assume the required return is 12 percent. What is the NPV for each of these projects? b-2. Which project will you choose of you apply the NPV decision rule? c-1. Over what range of discount rates would you choose Project A? c-2. Over what range of discount rates would you choose Project B? d. At what discount rate would you be indifferent between these two projects?
Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flows Project A Project B Project C Initial Investment (CFo) $60,000 $100,000 $110,000 Cash ınflows (CFt), t=1 to 5 20,000 31,500 32,500 a.Calculate the payback period for each project. b.Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to 13%. c.Calculate the internal rate of return (IRR) for each project. d.Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why.

SEE MORE QUESTIONS

Recommended textbooks for you

Financial And Managerial Accounting

Accounting

ISBN:

9781337902663

Author:

WARREN, Carl S.

Publisher:

Cengage Learning,

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

Carl Warren, Ph.d. Cma William B. Tayler

Publisher:

South-Western College Pub

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Financial And Managerial Accounting

Accounting

ISBN:

9781337902663

Author:

WARREN, Carl S.

Publisher:

Cengage Learning,

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

Carl Warren, Ph.d. Cma William B. Tayler

Publisher:

South-Western College Pub

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

SEE MORE TEXTBOOKS