Cooper Electronics uses NPV profiles to visually evaluate competing projects. Key data for the two projects under consideration are given in the following table: E. Using these data, graph, on the same set of axes, the NPV profiles for each project using discount rates of 0%, 8%, and the IRR. The IRR of project Terra is %. (Round to two decimal places.) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Terra Firma Initial investment $29,000 $28,000 Operating cash inflows $12,000 $12,000 $7,000 $10,000 Year $9,000 $11,000 $12,000 $8,000 1 2 4 Print Done

Cooper Electronics uses NPV profiles to visually evaluate competing projects. Key data for the two projects under consideration are given in the following table: E. Using these data, graph, on the same set of axes, the NPV profiles for each project using discount rates of 0%, 8%, and the IRR. The IRR of project Terra is %. (Round to two decimal places.) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Terra Firma Initial investment $29,000 $28,000 Operating cash inflows $12,000 $12,000 $7,000 $10,000 Year $9,000 $11,000 $12,000 $8,000 1 2 4 Print Done

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 15P

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a. Calculate the projects’ NPVs, IRRs, MIRRs, regular paybacks, and discounted paybacks.b. If the two projects are independent, which project(s) should be chosen?c. If the two projects are mutually exclusive and the WACC is 10%, which project(s)should be chosen?d. Plot NPV profiles for the two projects. Identify the projects’ IRRs on the graph.e. If the WACC was 5%, would this change your recommendation if the projects weremutually exclusive? If the WACC was 15%, would this change your recommendation?Explain your answers.f. The crossover rate is 13.5252%. Explain what this rate is and how it affects the choicebetween mutually exclusive projects.g. Is it possible for conflicts to exist between the NPV and the IRR when independentprojects are being evaluated? Explain your answer.h. Now look at the regular and discounted paybacks. Which project looks better whenjudged by the paybacks?i. If the payback was the only method a firm used to accept or reject projects, what paybackshould it…
Suppose the following two independent investment opportunities are available to Fitz, Inc. The appropriate discount rate is 8 percent. Year Project Alpha Project Beta 0 −$5,500 −$7,100 1 2,800 1,600 2 2,700 5,500 3 1,700 4,500 a. Compute the profitability index for each of the two projects. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) b. Which project(s), if either, should the company accept based on the profitability index rule? multiple choice Neither project Project Beta Both projects Project Alpha
Moses Manufacturing is attempting to select the best of three mutually exclusive projects, X, Y, and Z. Although all the projects have 5-year lives, they possess differing degrees of risk. Project X is in class V, the highest-risk class; project Y is in class II, the below-average-risk class; and project Z is in class III, the average-risk class. The basic cash flow data for each project and the risk classes and risk-adjusted discount rates (RADRs) used by the firm are shown in the following tables. Project X Project Y Project Z Initial investment (CF0) $179,000 $235,000 $312,000 Year (t ) Cash inflows (CFt) 1 $80,000 $56,000 $85,000 2 66,000 68,000 85,000 3 62,000 73,000 85,000 4 55,000 84,000 85,000 5 65,000 96,000 85,000 Risk Classes and RADRs Risk Class Description Risk adjusted…
ZeeZee’s Construction Company has the opportunity to select one of four projects (A, B, C, or D) or the null (Do Nothing) alternative. Each project requires a single initial investment and has an internal rate of return as shown in the first table below. The second table shows the incremental IRR(s) for pairwise comparisons between each project and all other projects with a smaller initial investment. For each of the values of MARR below indicate which project is preferred based on an incremental IRR analysis. a. MARR = 50%. b. MARR = 41%. c. MARR = 25%.
You are choosing between two projects, A and B. Project A has an IRR of 10% and Project B has an IRR of 12% (each has only one IRR - i.e., no IRR "math" problems). Select all of the following statements that are true (regardless of the other unknown details for the projects). Group of answer choices If the discount rate is 11%, one should select only Project B If the projects are independent and the discount rate is 9%, one should select Project B only If the projects are mutually exclusive and the discount rate is 9%, one should select Project B only If the projects are mutually exclusive and the discount rate is 11%, one should select Project B only If the projects are mutually exclusive and the discount rate is 9%, one should select Project A only If the projects are independent and the discount rate is 9%, one should select both projects
You have been assigned to perform a project selection based on profitability index. You have collected data on the three project alternatives A1, A2, and A3 and your team has calculated the following (table) present worth equivalent for the benefits, costs, and investments at a social discount rate of 10%. The service life of each alternative is identical. (a) Find the PI(i) for each project alternative (b) Find the best alternative based on incremental PI(i) analysis (c) Why is the profitability index referred to as a measure of capital efficiency?
A. Calculate the profitability index for project X. B. Calculate the profitability for project Y C. Using the NPV method combined with the PI aporoach, which project would you select? Use a discount rate of 13 percent
Project Analysis. Assume that you are evaluating the following three mutually exclusive projects: A. Complete the following analyses. (For the last two lines, Terminal Value, please write in the dollar amount of the terminal value.) B. Compare and explain the conflicting rankings of the NPVs and TRRs versus the IRRs. C. Using different discount rates, is it possible to get different rankings within the NPV calculation? Why or why not? D. If 10 percent is the required return, which project is preferred? E. Which is the fairer representation of these two projects, TRR or IRR? Why?
A large company has the opportunity to select one of seven projects: A, B, C, D, E, F, G, or the null (Do Nothing) alternative. Each project requires a single initial investment as shown in the table below. Information on each alternative was fed into a computer program that calculated the IRR for each project as well as all the pertinent incremental IRR(s) as shown in the table below. For example, the IRR for Project A is 10% and the incremental IRR of Project C minus Project B (C-B) is 0.1%. For each value of MARR below indicate which project is preferred and the evaluations you made to arrive at this conclusion. Solve, a. MARR = 12%. b. MARR = 9.5%. c. MARR = 8%. d. MARR = 3.5%. e. MARR = 1.5%.
Use the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. 5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). 5.1.4 Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivateyour choice. INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000 Additional informationThe discount rate used by the company is 12%.
State whether the following statement is true or false and provide a hand-written explanation of your answer (your answer is limited to eight horizontal lines drawn on an A4 page in portrait orientation). The great advantage of the IRR technique over the NPV technique is that you don’t need to calculate a benchmark discount rate applicable to the project. This is useful as we don’t really have a way of estimating a discount rate that can be used in the NPV analysis of a project.
You are the head of the project selection team at Broken Arrow Records. Your team is considering two different recording projects. Based on past history, Broken Arrow expects at least a rate of return of 20 percent. Given the following information for each project, calculate the NPV for both projects using the NPV formula in Microsoft Excel.