Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Bruin, Incorporated, has identified the following two mutually exclusive projects: |
Year | Cash Flow (A) | Cash Flow (B) |
---|---|---|
0 | −$ 28,500 | −$ 28,500 |
1 | 13,900 | 4,050 |
2 | 11,800 | 9,550 |
3 | 8,950 | 14,700 |
4 | 4,850 | 16,300 |
a-1. |
What is the |
a-2. |
Using the IRR decision rule, which project should the company accept? |
multiple choice 1
|
a-3. | Is this decision necessarily correct? |
multiple choice 2
|
b-1. |
If the required return is 11 percent, what is the |
b-2. | Which project will the company choose if it applies the NPV decision rule? |
multiple choice 3
|
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.) |
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- 7) Consider the following project: Year Cash Flow 0 – $ 3,024 1 17,172 2 – 36,420 3 34,200 4 – 12,000 Year Cash Flow 0 -3,024 1 17,172 2 -36,420 3 34,200 4 -12,000 a) Determine the IRR (s) for this project. Do not use Excel sheet b) At which rates of return will the project be acceptable?arrow_forwardCarol, Inc. is considering three different independent investment opportunities. The present value of future cash flows, initial investment, and net present value for each of the projects are as follows: Project A Project B Project C Present value of future cash flows $ 651,200 $ 476,700 $ 585,200 Initial investment 280,000 235,000 270,000 Net present value $ 371,200 $ 241,700 $ 315,200 In what order should Carol prioritize investment in the projects? Multiple Choice A, B, C C, A, B C, B, A A, C, Barrow_forwardConsider the following projects: Cash Flows ($) Project D E CO00 C101 -11,700 23,400 -21,700 37,975 Assume that the projects are mutually exclusive and that the opportunity cost of capital is 12%. a. Calculate the profitability index for each project. b-1. Calculate the profitability-index using the incremental cash flows. b-2. Which project should you choose?arrow_forward
- Two mutually-exclusive projects P2 and P3 are being considered for an investment. One of them must be chosen. Thus there is no "do-nothing" alternative. The cash flows for the projects are given in the table below: Year P2 P3 -$1,900,000 $803,000 $803,000 $803,000 -$4,900,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 $1,503,000 1 2 3 4 5 $803,000 $803,000 $803,000 $803,000 $803,000 $803,000 $803,000 $803,000 6 7 19 10 11 12 $803,000 $803,000 $803,000 $803,000 13 14 15 $803,000 $803,000 $803,000 $803,000 $803,000 16 17 18 19 20 MARR is 20% and we are using incremental analysis to choose one of these two projects. (a) The Present Worth at MARR of the incremental investment [P3-P2] is (b) Therefore, the following project should be accepted:arrow_forwardYou are given the following financial information related to a capital investment project. What is the project's Year 1 Net Cash Flow? Sales revenues Depreciation Other operating costs Interest Exp Tax rate WACC Select one: a. $8,580 b. $8,900 c. $9,350 d. $9,463 e. $9,832 $22,250 $8,000 $12,000 $800 40.0% 12.0%arrow_forwardA firm is considering the following independent projects. Project Investment Present value offuture cash flows NPV A $130 $176 $46 B $103 $115 $12 C $183 $287 $104 D $161 $199 $38 E $184 $273 $89 What is the Profitability Index of Project B? Question 5Answer a. 0.85 b. 1.12 c. 0.89 d. 1.18arrow_forward
- Consider two mutually exclusive projects A and B: Cash Flows (dollars) Project Co A -39,500 B -59,500 C₁ 28,600 42,500 C₂ NPV at 11% 28,600 +$ 9,478 42,500 +13,282 a. Calculate IRRS for A and B. Note: Do not round intermediate calculations. Enter your answers as a perc Project A B IRR % % b. Which project does the IRR rule suggest is best? Project A Project B c. Which project is really best? Project A Project B Parrow_forwardDo not provide solution in image format. and give the explanation.arrow_forwardConsider two investments A and B with the following sequences of cash flows: Net Cash Flow n Project A Project B 0 -$120,000 -$100,000 1 20,000 15,000 2 20,000 15,000 3 120,000 130,000 (a) Compute the IRR for each investment. (b) At MARR = 15%, determine the acceptability of each project. (c) If A and B are mutually exclusive projects, which project would you select, based on the rate of return on incremental investment?arrow_forward
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