a. What is the simple payback period for Alternative 1?ESb. What is the annual worth of Alternative 2?c. What is the IRR of the incremental cash flows ofAlternative 2 compared to Alternative 1?d. Which alternative should be selected and why? Stateyour assumptions. 6-35. Three mutually exclusive investment alternativesare being considered. The estimated cash flows for eachalternative are given below. The study period is 30 yearsand the firm's MARR is 20% per year. (6.5.2)Alt. 1Alt. 2Alt. 3-$30,000$15,000 -$30,000$28,00010,000-$60,000 -$40,000-$25,000$38,000Capital investmentAnnual costs$53,50010,000Annual revenuesMarket value at end10,000of useful lifeUseful life5 years5 years29.9%6 years26.0%IRR36.9%

As per policy we answer only 3 sub questions in a single question. Please repost the unanswered…

a. What is the simple payback period for Alternative 1? b. What is the annual worth of Alternative 2? c. What is the IRR of the incremental cash flows of Alternative 2 compared to Alternative 1? d. Which alternative should be selected and why? State

a. What is the simple payback period for Alternative 1? b. What is the annual worth of Alternative 2? c. What is the IRR of the incremental cash flows of Alternative 2 compared to Alternative 1? d. Which alternative should be selected and why? State

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 4MC

See similar textbooks

Related questions

Q: Which of the following are correct regarding the frequency of compounding? Choose two. A) the…

A: The compounding frequency is the number of times interest is paid out or capitalized in the account…

Q: Requlred: 1. What would be the total annual cash inflows associated with the new machine for capital…

A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: What is the present value of the following cash flow streams at an interest rate of 6.25%? Which…

A: YEAR CASHFLOW (TOP) CASHFLOW (BOTTOM) 0 0 750 1 75 2450 2 225 3175 3 0 4400 4 300…

Q: a. Assuming that the desired rate of return is 6%, determine the net present value for the proposal.…

A: Net present value method: Net present value method id the method which is used to compare the…

Q: which of the following statement is true>? 1. return on equity is the ratio of total assets to…

A: Capital budgeting is a way to evaluate profitability of new projects or investment by using various…

Q: Payback period is the time in which the initial cost of an investment is expected to be recovered…

A: The payback period is the time it takes to repay the cost of an investment or to reach the breakeven…

Q: If the present value of future cash flows is $4,200 for an investment that requires an outlay of…

A: NPV = present value of cash inflows - the present value of cash outflows given that, present…

Q: u are given two choices of investments, Investment A and Investment B. Both investments have the…

A: Introduction: The term present value can be defined as the current value of future set of cash flows…

Q: The internal rate of return method assumes that the cash flows over the life of the project are…

A: IRR is the required rate of return for the project to have zero Net Present value.

Q: Consider two assets with the following cash flow streams:Asset A generates $4 at t=1, $3 at t=2, and…

A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: What refers to the interest rate at which the present work of the cash flow on a project is zero of…

A: The RoR can be used with any asset that was purchased at some point in the past and will provide…

Q: Which one of the following statements is correct?

A: If the internal rate of return equals the required return, the net present value will equal zero.

Q: Which of the following is the correct definition for present value (PV)?

A: Present value is an important concept in finance which is based on the concept of time value of…

Q: rejecting it? LO 3 8. Calculating IRR What is the IRR of the following set of cash flows? Year Cash…

A: Net Present Value: Net present value (NPV) is the excess of present value of cash inflows over the…

Q: Required: a. What are the operating cash flows in each year? b. What are the total cash flows in…

A: Calculation of operating cash flow and total cash flows 1 to 5 years Particulars Year 1 Year 2…

Q: Suppose an investment has conventional cash flows with positive NPv. How would it impact your…

A: NPV is the net present value of a project. When the net present value of a project is positive in…

Q: You have determined the profitability of a planned project by finding the present value of all the…

A: We determine the profitability of project by discounting the future cash flows with appropriate…

Q: Consider a project with the following cash flows: End of Year (n) Cash Flows ($)0…

A: Capital budgeting indicates the evaluation of the profitability of possible investment and projects…

Q: Question 1 Which one of the following statements is NOT correct? Group of answer choices If…

A: Capital budgeting is a technique to estimate the profitability of the projects. There are various…

Q: oose the correct option- "This is the rate at which present value of cash inflows are equal to the…

A: Net present value or NPV is excess of present value of cash inflows over present value of cash…

Q: When using the NPV method for a particular investment decision, if the present value of all cash…

A: When NPV method is used the investment is measured on three scenarios Positive NPV Where the…

Q: A project's present value can be decreased by, I. decreasing the required discount rate (required…

A: There are various reasons for decreasing the present value of the project some of them are as…

Q: Which capital budgeting technique measures all expected future cash inflows and outflows as if they…

A: Based on the cost of capital the net present value method discounts the future cash flows (both cash…

Q: a. What is the present value of the following set of cash flows, discounted at 10.6% per year?…

A: given information Year 1 2 3 4 5 CF $11 $21 $31 $41 $51 interest…

Q: Which one of the following statements is correct concerning the payback rule? a. The payback…

A: Answer - Payback Period - The payback period is the amount of time it will take to recover the…

Q: (a) Construct a cash flow diagram for both type A and B (b) Determine which type should be chosen…

A: Net present value is sum of present value of cash flows. Excel function =NPV will be used to…

Q: Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a…

A: payback period = years before payback period + (cumulative cash flow in the year before recovery)/…

Q: The cash flows for two alternatives X and Y are shown in the table displayed here. Year: 0 1 2 3…

A: Year Cash Flow - A Cash Flow - B 0 -3000 -5000 1 900 1400 2 900 1400 3 900 1400 4 900…

Q: Which of the following are correct regarding the frequency of compounding? Choose two The more…

A: future value=present value×1+rmm×nwhere,m= frequency of compounding higher the frequency higher is…

Q: If you wanted to find the present value of the CF described in either of the first two problems in…

A: Present Value: The present value (PV) of a future amount of money or stream of cash flows is the…

Q: a. What is the present value of the following set of cash flows, discounted at 9.9% per year? Year 1…

A: Discount rate = 9.9% Calculation of present value Year Cash flow PVF(9.9%,Year) Present value A…

Q: According to Descartes' rule of signs, how many possible i values are there for the cash flows…

A: Information provided: Year Cashflows 0 -9000 1 4100 2 -2000 3 -7000 4 12000 5 700…

Q: What is the payback period (in annual terms) of the following cashflow stream?

A: Payback Period: It refers to the period in which the initial cost of investment or project is…

Q: Consider the calculation of an external rate of return (ERR). The positive cash flows in the cash…

A: External rate of return is the return rate which is expected to be generated from the project. If…

Q: What is the Modified Internal Rate of Return of Mazgaon using the reivestment approach if the…

A: The Modified internal rate of return can be calculated as follows :

Q: When the underlying riskiness of free cash flows (FCF) decreases, the value of the project O…

A: Free cash flow refers to funds of the company which is freely available to be repaid to the…

Q: Which figure of merit provides an interest rate at which the present value of the future cash flows…

A: IRR It is a rate at which the amount of investment equals to PV of the future CF. It is a…

Q: a. Compute the net present value of each alternative b. Compute for payback period. Initial…

A: Cost of Capital = 14% There is two design that is designed A and design B. There are three methods…

Q: For a project that has an initial cash outflow followed by cash inflows, the profitability index…

A: Profitability Index The Profitability Index (PI) is the ratio between the present value of cash…

Q: A project's internal rate of return (IRR) is the that forces the PV of its inflows to equal its…

A: Since you have asked a question with multiple parts, we will only solve the first 3 parts for you.…

Q: Which of the following statements is CORRECT? Assume that the project being considered has normal…

A: Point 1 is not correct as IRR is not found using this method. Cash flows cannot be compounded at…

Q: Find IRR

A: Internal Rate of Return (IRR) is a capital budgeting technique that evaluates the proposed projects…

Q: or the nonconventional net cash flow series shown, the external rate of return per year using the…

A: ERROR is the external rate of return, MIRR is the modified internal rate of return, b is the…

Question

a. What is the simple payback period for Alternative 1?
ES
b. What is the annual worth of Alternative 2?
c. What is the IRR of the incremental cash flows of
Alternative 2 compared to Alternative 1?
d. Which alternative should be selected and why? State
your assumptions.

6-35. Three mutually exclusive investment alternatives
are being considered. The estimated cash flows for each
alternative are given below. The study period is 30 years
and the firm's MARR is 20% per year. (6.5.2)
Alt. 1
Alt. 2
Alt. 3
-$30,000
$15,000 -$30,000
$28,000
10,000
-$60,000 -$40,000
-$25,000
$38,000
Capital investment
Annual costs
$53,500
10,000
Annual revenues
Market value at end
10,000
of useful life
Useful life
5 years
5 years
29.9%
6 years
26.0%
IRR
36.9%

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

Step 2

Step 3

Step 4

Step by step

Solved in 4 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

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

When using the NPV method for a particular investment decision, if the present value of all cash Inflows Is greater than the present value of all cash outflows, then _______ . A. the discount rate used was too high B. the investment provides an actual rate of return greater than the discount rate C. the investment provides an actual rate of return equal to the discount rate D. the discount rate is too low
This calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero A. internal race of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. future value method
The expected period of time that will elapse between the date of a capital investment and thecomplete recovery of the amount of cash investedis called: A.The average rate of return period B.The cash payback period C.The net present value period D.The internal rate of return period
The NPV method assumes that cash inflows associated with a particular investment occur when? A. only at the time of the initial Investment B. only at the end of the year C. only at the beginning of the year D. at any of these times
What is Computron’s free cash flow? What are Computron’s “net uses” of its FCF?
The IRR method assumes that cash flows are reinvested at _________. A. the internal rate of return B. the companys discount rate C. the lower of the companys discount rate or Internal rate of return D. an average of the internal rate of return and the discount rate
The rate of return that equates the present value of cash inflows and outflows is the: A. hurdle rate.B. desired rate of return.C. internal rate of return. D. minimum rate of return.
The cash flows for two alternatives X and Y are shown in the table displayed here. Year: 0 1 2 3 4 5 Alternative X: -$3,000 900 900 900 900 1,300 Alternative Y: -$5,000 1,400 1,400 1,400 1,400 2,100 Write an equation using appropriate compound-interest factors that could be used to solve for the incremental rate of return (ΔIRR) associated with these two alternatives. Do NOT solve this equation for ΔIRR.
1. Which of the following is not true? Group of answer choices The method in which we calculate a project’s Internal Rate of Return (IRR) is called the Discounted Cash Flow approach. The Payback period can be calculated using the discounted (present) values of future cash inflows. The Payback period calculated using this method is what's called the Discounted Payback Period. The Net Present Value is calculated using the present value of the investments and future cash inflows. None of the above (all of the above are correct)
Incremental cash flow is calculated as (cash flowB− cash flowA), where B represents the alternative with the larger initial investment. If the two cash flows were switched wherein B represents the one with the smaller initial investment, which alternative should be selected if the incremental rate of return is 20% and the MARR is 15%? Explain.
Which of the following are correct regarding the frequency of compounding? Choose two. A) the more frequent, the less that needs to be invested now in order to achieve a given future cash flow B) the more frequent, the more that needs to be invested now in order to achieve a given future cash flow C) the more frequent, the greater the present value of a fixed future cash flow D) the more frequent, the lower the present value of a fixed future cash flow
Which of the following methods for evaluating capital investment proposals reduces the expected future net cash flows originating from the proposals to their present values and computes a net present value? a. average rate of return b. net present value c. internal rate of return d. cash payback