Exercise 12-5 Preference Ranking [LO12-5]Information on four investment proposals is given below:Investment ProposalBCDInvestment requiredPresent value of cash inflowsA$(136,000) $(146,000) $(116,000) $(189,000)209,440 216,080 153, 120 275,940Net present value$ 73,440 $ 70,080 $ 37,120 $ 86,940Life of the project5 years 7 years 6 years 6 yearsRequired:1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.)2. Rank the proposals in terms of preference.InvestmentProposalProjectProfitabilityRankPreferenceIndexABCD0.54 First0.48SecondFourthThird

Profitability index is calculated using the formula Profitability index=NPVInitial investment. This…

Information on four investment proposals is given below: Investment Proposal B C A D Investment required $(136,000) $(146,000) $(116,000) $(189,000) 209,440 216,080 153, 120 275,940 Present value of cash inflows Net present value $ 73,440 $ 70,080 $ 37,120 $ 86,940 5 years 7 years 6 years 6 years Life of the project Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference.

Information on four investment proposals is given below: Investment Proposal B C A D Investment required $(136,000) $(146,000) $(116,000) $(189,000) 209,440 216,080 153, 120 275,940 Present value of cash inflows Net present value $ 73,440 $ 70,080 $ 37,120 $ 86,940 5 years 7 years 6 years 6 years Life of the project Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference.

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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Exercise 14A-1 (Algo) Basic Present Value Concepts [LO14-7] Annual cash inflows that will arise from two competing investment projects are given below: Year Investment A Investment B 1 $ 7,000 $ 10,000 2 8,000 9,000 3 9,000 8,000 4 10,000 7,000 $ 34,000 $ 34,000 The discount rate is 5%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Compute the present value of the cash inflows for each investment.
Exercise 12-14 (Algo) Comparison of Projects Using Net Present Value [LO12-2] Labeau Products, Limited, of Perth, Australia, has $15,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest in Project X Invest in Project Y Investment required $ 15,000 $ 15,000 Annual cash inflows $ 5,000 Single cash inflow at the end of 6 years $ 36,000 Life of the project 6 years 6 years The company’s discount rate is 16%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project X. 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept?
Problem 13-11 MIRR (LG13-4) Compute the MIRR statistic for Project I if the appropriate cost of capital is 11 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project I Time: 0 1 2 3 4 Cash flow: −$11,100 $5,380 $4,230 $1,570 $2,050 Should the project be accepted or rejected? accepted rejected
Exhibit 8-3A firm is evaluating two investment proposals. The following data is provided for the two investment alternatives. Initial cash outflow IRR NPV(@14%) Project 1 $350m 28% $80m Project 2 $ 20m 36% $20m Refer to Exhibit 8-3. If the two projects are mutually exclusive, which project should the firm choose? What is the problem that the firm should be concerned with in making this decision? Group of answer choices project 1; project scale project 2; discount rate project 1; discount rate project 2; project scale
Exercise 14-1 (Algo) Payback Method [LO14-1] The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment Cash Inflow 1 $ 61,000 $ 3,000 2 $ 5,000 $ 6,000 3 $ 12,000 4 $ 13,000 5 $ 16,000 6 $ 10,000 7 $ 8,000 8 $ 10,000 9 $ 9,000 10 $ 9,000 Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large?
Problem 13-13 PI (LG13-6) Compute the PI statistic for Project Z if the appropriate cost of capital is 7 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project Z Time: 0 1 2 3 4 5 Cash flow: –$1,400 $430 $560 $730 $380 $180 Should the project be accepted or rejected? accepted rejected
Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects.
Exhibit 8-3A firm is evaluating two investment proposals. The following data is provided for the two investment alternatives. Initial cash outflow IRR NPV(@14%) Project 1 $350m 28% $80m Project 2 $ 20m 36% $20m Refer to Exhibit 8-3. If the two projects are independent, which project should the firm choose based on the IRR rule? Group of answer choices cannot decide because the hurdle rate is unknown project 1 project 2 both projects
Problem 8-18 Crossover Point [LO 3] Crenshaw Enterprises has gathered projected cash flows for two projects. Year Project I Project J 0 −$ 267,000 −$ 267,000 1 113,300 95,200 2 106,400 100,700 3 90,400 102,700 4 79,400 109,700 At what interest rate would the company be indifferent between the two projects? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Which project is better if the required return is above this interest rate?
8. Problem 11.10 (Capital Budgeting Criteria: Mutually Exclusive Projects) eBook A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$200 $60 $60 $60 $240 $240 Project 2 -$450 $300 $300 $150 $150 $150 Which project would you recommend? Select the correct answer. a. Both Projects 1 and 2, since both projects have NPV's > 0. b. Neither Project 1 nor 2, since each project's NPV < 0. c. Project 1, since the NPV1 > NPV2. d. Project 2, since the NPV2 > NPV1. e. Both Projects 1 and 2, since both projects have IRR's > 0.
Exercise 25-13A Internal rate of return LO P4 Following is information on two alternative investments being considered by Tiger Co. The company requires a 5% return from its investments. Project X1 Project X2 Initial investment $ (102,000 ) $ (164,000 ) Expected net cash flows in year: 1 36,000 76,500 2 46,500 66,500 3 71,500 56,500 Compute the internal rate of return for each of the projects using excel functions and based on internal rate of return, indicate whether each project is acceptable. (Round your answers to 2 decimal places.)

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