Global Systėms Inc. Plans to open a new product line next year. The after tax cash inflows of the two plans is listed below. The firm's cost of capital is 15 percent. The initial investment for each plan is Rs5,00,00o. PLAN YEAR 1 YEAR2 YEAR3_YEAR4 YÉARS AB Rs300 Rs325 Rs150 "Rs30O Rs225 - Rs100 XY Rs150 Rs200 Rs325 Rs100 a) Construct the NPV profiles for PLAN AB and PLAN XY. Which PLAN has a higher IRR?. b) According to the NPV criterion which PLAN should Global Systems choose? c) Calculate the cost of capitał at which the NPV and the IRR rankings conflict?. d) Which plan should the company choose? Why?
Global Systėms Inc. Plans to open a new product line next year. The after tax cash inflows of the two plans is listed below. The firm's cost of capital is 15 percent. The initial investment for each plan is Rs5,00,00o. PLAN YEAR 1 YEAR2 YEAR3_YEAR4 YÉARS AB Rs300 Rs325 Rs150 "Rs30O Rs225 - Rs100 XY Rs150 Rs200 Rs325 Rs100 a) Construct the NPV profiles for PLAN AB and PLAN XY. Which PLAN has a higher IRR?. b) According to the NPV criterion which PLAN should Global Systems choose? c) Calculate the cost of capitał at which the NPV and the IRR rankings conflict?. d) Which plan should the company choose? Why?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter2: Financial Statements, Cash Flow,and Taxes
Section: Chapter Questions
Problem 21SP: Begin with the partial model in the file Ch02 P21 Build a Model.xlsx on the textbooks Web site. a....
Related questions
Question
Transcribed Image Text:Question # 2
Global Systėms Inc. Plans to open a new product line next year. The
after tax cash inflows of the two plans is listed below. .The firm’s
cost of capital is 15 percent. The initial investment for each plan is
Rs5,00,000.
PLAN
YEAR 1 YEAR2
YEAR3
YEAR4
YEARS
AB
Rs300
Rs225.
Rs325
Rs325
Rs150
Rs100
XY
Rs150
Rs200
-"Rs300
Rs100
a) Construct the NPV profiles for PLAN AB and PLAN XY. Which
PLAN has a higher IRR?.
b) According to the NPV criterion which PL AN should Global
Systems choose?
c) Calculate the cost of capital at which the NPV and the IRR
rankings conflict?.
d) Which plan should the company choose? Why?
*Note: All value of year 1 to 5 are in "000"
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
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.Recommended textbooks for you
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
Individual Income Taxes
Accounting
ISBN:
9780357109731
Author:
Hoffman
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning