Kaleb Konstruction, Inc., has the following mutually exclusive projects available. Thecompany has historically used a three-year cutoff for projects. The required return is 12percent.YearProject FProject G$131,00062,00048,00058,00053,00048,000$201,00042,00057,00088,000118,000133,000a. Calculate the payback period for both projects. (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g., 32.16.)b. Calculate the NPV for both projects. (Do not round intermediate calculations andround your answers to 2 decimal places, e.g., 32.16.)c. Which project, if any, should the company accept?a. Project FyearsProject Gyearsb. Project FProject GC.-234 5

Payback period is the amount of time required to recover initial investment. Payback period =Initial…

Kaleb Konstruction, Inc., has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 12 percent. Year Project F Project G $131,000 62,000 48,000 58,000 53,000 48,000 $201,000 42,000 57,000 88,000 118,000 133,000 a. Calculate the payback calculations and round your answers to 2 decimal places, e.g., 32.16.) b. Calculate the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which project, if any, should the company accept? riod for both projects. (Do not round intermediate a. Project F years 12345

Kaleb Konstruction, Inc., has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 12 percent. Year Project F Project G $131,000 62,000 48,000 58,000 53,000 48,000 $201,000 42,000 57,000 88,000 118,000 133,000 a. Calculate the payback calculations and round your answers to 2 decimal places, e.g., 32.16.) b. Calculate the NPV for both projects. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. Which project, if any, should the company accept? riod for both projects. (Do not round intermediate a. Project F years 12345

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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Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for 2 years) and Project F (which lasts for 4 years): The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital. (1) What is each projects initial NPV without replication? (2) What is each projects equivalent annual annuity? (3) Apply the replacement chain approach to determine the projects extended NPVs. Which project should be chosen? (4) Assume that the cost to replicate Project T in 2 years will increase to 105,000 due to inflation. How should the analysis be handled now, and which project should be chosen?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: The companys capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the computed amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected. 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value table appearing in Exhibit 2 of this chapter. 5. Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4). 7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). 8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
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