Bruin, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$36,500 -$36,500 1 18,820 6,400 2 14,320 12,900 3 11,820 19,400 4 8,820 23,400 At what discount rate would the company be indifferent between these two projects? ○ 19.73% 20.34% 19.32% 20.95% ○ 21.36%
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- Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?Define each of the following terms: Capital budgeting; payback period; discounted payback period Independent projects; mutually exclusive projects Net present value (NPV) method; internal rate of return (IRR) method; profitability index (PI) Modified internal rate of return (MIRR) method NPV profile; crossover rate Nonnormal cash flow projects; normal cash flow projects; multiple IRRs Reinvestment rate assumption Replacement chain; economic life; capital rationing; equivalent annual annuity (EAA)Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$56,000 -$56000 1 32,000 19,400 2 26,000 23,400 3 19,000 28,000 4 13,200 25,400 Over what range of Discount rates would you choose Project A? Project B? (Please list percentages rounded to 2 decimal places. Hint: The answer is not the same as the IRR.) Project A ____________% Project B ____________% At what discount rate would you be indifferent between these two projects? ____________%
- Net Cash Flows and NPVs for different discount rate for projects S and L are given below Net Cash Flows ($) Discount Rate (%) NPVS NPVL Year (t) Project S Project L 0% $800 $1100 0 $(3000) $(3000) 5 554.32 1 1500 400 10 161.33 2 1200 900 15 (90.74) (259.24) 3 800 1300 20 (309.03) (565.97) 4 300 1500 g) If projects are mutually exclusive, which project would you accept? i) at 5% ii) at 15% h) If projects are independent (not mutually exclusive), which project(s) would you accept? i) at 5% ii) at 15%. Net Cash Flows and NPVs for different discount rate for projects S and L are given below Net Cash Flows ($) Discount Rate (%) NPVS NPVL Year (t) Project S Project L 0% $800 $1100 0 $(3000) $(3000) 5 554.32 1 1500 400 10 161.33 2 1200 900 15 (90.74) (259.24) 3 800 1300 20 (309.03) (565.97) 4 300 1500 h) If projects are independent (not mutually exclusive), which project(s) would you accept? i) at 5% ii) at 15%The Klingon Sausage Corporation is trying to choose between the following two projects: Year Cash Flow (Project I) Cash Flow (Project II) 0 -$363,000 -$165,000 1 184,800 99,600 2 184,800 99,600 3 184,800 99,600 The discount rate of both projects is 8%. Klingon’s manager believes the company has sufficient resources so that the two projects should not be treated as mutually exclusive. Which project should be taken based on the profitability index? A. Project I should be accepted and project II should be rejected. B. None of the projects should be accepted. C. Project I should be rejected and project II should be accepted. D. Both projects should be accepted.
- Textiles Unlimited has gathered projected cash flows for two projects. At what interest rate would the company be indifferent between the two projects? Year Cash Flow (A) Cash Flow (B) 0 -105,000 -105,000 1 42,200 52,600 2 34,600 39,400 3 38,700 35,500 4 45,500 30,100Garage, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$43,500 -$43,500 1 21,400 6,400 2 18,500 14,700 3 13,800 22,800 4 7,600 25,200 What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule? Over what range of discount rates would the company choose project? A? Project B? At what discount rate would the company be indifferent between these two projects? Explain.A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: Project S -$1,000 $899.96 $240 $15 $5 Project L -$1,000 $10 $250 $380 $843.66 The company's WACC is 10.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.
- Bruin, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$ 28,700 –$ 28,700 1 14,100 4,150 2 12,000 9,650 3 9,050 14,900 4 4,950 16,500 a-1 What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2 Using the IRR decision rule, which project should the company accept? Project A Project B a-3 Is this decision necessarily correct? Yes No b-1 If the required return is 12 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2 Which project will the company choose if it applies the NPV decision rule? Project A Project B c.…Projects W and X are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. Year Project W Project X 0 –$1,000 –$1,500 1 $200 $350 2 $350 $500 3 $400 $600 4 $600 $750 0 2 4 6 8 10 12 14 16 18 20 800 600 400 200 0 -200 NPV (Dollars) DISCOUNT (REQUIRED) RATE (Percent) Project X Project W If the required rate of return for each project is 2%, do the NPV and IRR methods agree or conflict? The methods conflict. The methods agree.Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 28,000 −$ 28,000 1 13,400 3,800 2 11,300 9,300 3 8,700 14,200 4 4,600 15,800 a-1. What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. If the required return is 10 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
