Subject: acounting Blossom Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevantdata on each project are as follows.Capital investmentAnnual net income:Year 123Total45Project Bono$165,00014,28014,28014,28014,28014,280$71,400DProject Edge Project Clayton$179,000$202,00018,36017,34016,32012,2409,180$73,44027,54023,46021,42013,26012,240$97.920Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash.flows occur evenly throughout the year.)Click here to view the factor table. Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)Project BonoProject EdgeProject ClaytoneTextbook and Mediayearsyearsyears

The term "payback period" refers to the amount of years that must pass before the initial monetary…

Answered: Blossom Company is considering three…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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NPV profile of a project. Given the following cash flow of Project L-2, draw the NPV profile. Hint. Be sure to use a discount rate of zero for one intercept (y-axis) and solve for the IRR for the other intercept ( x-axis). (Click on the following icon ◻ in order to copy its contents into a spreadsheet.) Year 0=-$300,000 Year 1=$50,000 Year 2=$79,000 Year 3=$118,000 Year 4=$130,000 What is the NPV of Project L-2 where zero is the discount rate? $ (Round to the nearest dollar.) What is the IRR of Project L-2? % (Round to two decimal places.) Which of the graphs below best fits the NPV profile of the project? Click on the magnifying glass icon to see an enlarged version of each graph. (Select the best response.) B. D.
Payback period. Given the cash flow of two projects-A and B-in the following table, and using the payback period decision model, which project(s) do you accept and which proje period for recapturing the initial cash outflow? For payback period calp What is the payback period for project A? 6 Data Table - X years (Round to one decimal place.) (Click on the following icon D in order to copy its contents into a spreadsheet.) Cash Flow B. Cost Cash flow year 1 Cash flow year 2 Cash flow year 3 Cash flow year 4 Cash flow year 5 Cash flow $12,000 $6,000 $6,000 $6,000 $100,000 $20,000 $10,000 $40,000 $6,000 $30,000 SO $6,000 $6,000 year 6. SO Print Done
Crane Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows. Project Bono Project Edge Project Clayton Capital investment $164,000 $180,500 $204,000 Annual net income: Year 1 14,420 18,540 27,810 2 14,420 17,510 23,690 14,420 16,480 21,630 4 14,420 12,360 13,390 14,420 9,270 12,360 Total $72,100 $74,160 $98,880 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) Click here to view the factor table. Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.) Project Bono years Project Edge years Project Clayton years
(Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 Year 2 Year 3 Year 0 -$50 -$101 $26 $20 $22 $22 $39 $49 Project A B Year 4 $16 $62 You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): a. What are the IRRs of the two projects? b. If your discount rate is 5.2%, what are the NPVs of the two projects? c. Why do IRR and NPV rank the two projects differently?
Crane Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows. Project Bono Project Edge Project Clayton Capital investment $164,000 $180,500 $204,000 Annual net income: Year 1 14,420 18,540 27,810 2 14,420 17,510 23,690 3 14,420 16,480 21,630 4 14,420 12,360 13,390 5 14,420 9,270 12,360 Total $72,100 $74,160 $98,880 Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)
Calculate the NPV of each project. (Use the NPV function in Excel to solve this problem.) Which of the two projects would you fund if the decision is based only on financial information and you could only choose one of the projects? Omega Alpha Year Inflow YO 0 Y1 0 Outflow 207,000 110,000 Netflow Year Inflow Outflow Netflow (207,000) YO 0 217,000 (217,000) (110,000) Y1 7,000 190,000 (183,000) Y2 150,000 0 150,000 Y2 150,000 0 150,000 Y3 220,000 30,000 190,000 Y3 220,000 30,000 190,000 Y4 161,000 0 161,000 Y4 191,000 0 191,000 Y5 205,000 48,000 157,000 Y5 205,000 38,000 167,000 Y6 197,000 0 197,000 Y6 197,000 0 197,000 Y7 100,000 30,000 70,000 Y7 100,000 30,000 70,000 Total 1,033,000 425,000 608,000 Total 1,070,000 505,000 565,000 The NPV for Omega is The NPV for Alpha is The better project is
Consider the cash flow of the two projects depicted in Table 3. If WiseGuy Inc. uses payback period rule to choose projects, which of the projects (Project A or Project B) will rank highest? TABLE 3 Project A Project B Time 0. -11,000. -10,000 Time 1. 3,000. 4,000 Time 2. 8,000. 3,000 Time 3. 3,000. 10,000 A) Project A B) Project B C) Project A and Project B have the same ranking. D) It cannot calculate a payback period without a discount rate. 7 Consider the cash flow of the two projects depicted in Table 3. If WiseGuy Inc. uses IRR rule to choose projects, which of the projects (Project A or Project B) will rank highest? A) Project A B) Project B C) Project A and Project B have the same ranking. D) It cannot calculate a payback period without a discount rate.
A project has the following cash flows set out below. What is the profitability index of this project if the relevant discount rate is 2 percent? Enter your final answer to two decimal places. Year Cash flow 0 -1,745 1 537 2 2,066 3 3,912
A2. (PaybackandNPV)Threeprojectshavethecashflowsgivenhere.Thecostofcapitalis10%. a. Calculate the paybacks for all three projects. Rank the projects from best to worst based on their paybacks. Calculate the NPVs for all three projects. Rank the projects from best to worst based on their NPVs c. Why are these two sets of rankings different? YEAR 0 1 2 3 4 5Project 1 −10 4 3 2 1 5 Project 2 −10 1 2 3 4 5 Project 3 −10 4 3 2 1 10
Profitability index. Given the discount rate and the future cash flow of each project listed in the following table, . use the Pl to determine which projects the company should accept. What is the Pl of project A? i Data Table (Round to two decimal places.) (Click on the following icon o in order to copy its contents into a spreadsheet.) Cash Flow Project A -%241,900,000 $150,000 $350,000 Project B Year 0 $2,300,000 $1,150,000 $950 000 $750,000 $550,000 Year 1 Year 2 Year 3 $550,000 Year 4 $750,000 $950,000 4% Year 5 $350.000 Discount rate 18% Print Done
You are choosing between two projects. The cash flows for the projects are given in the following table ($ million): a. What are the IRRs of the two projects? b. If your discount rate is 4.7%, what are the NPVs of the two projects? c. Why do IRR and NPV rank the two projects differently? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 Project A Year 1 - -$51 $27 B - $101 $22 Year 2 $21 $42 Year 3 $20 Year 4 $13 $51 $59 - ☑
Solve the following problem by applying the method used in the video uploaded in your Pewertaint presentation. You may check Lesson 04 Video 02 Payback pierrad Problem. Assume the following cash flow for 2 projects. Assutming that the cash flows are occurring at the end of the year. Find the payback period for both these projects Year Project 1 Project 2 1000 600 1000 100 400 200 200 100 400 600 600 700

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