Project L has cash flows of -$900 at time zero; $490 at time 1; $410 at time 2; $490 at time 3. Use WACC of 7%.  Project K has original cost of -$2,000 at time zero; $300 at time 1; $ 850 at time 2: $700 at time 3; $1,200 at time 4. Use WACC of 7%. Find payback period for both projects  Find NPV for both projects If the company favors projects with shorter paybacks, how much NPV will be forgone?

Question
Project L has cash flows of -$900 at time zero; $490 at time 1; $410 at time 2; $490 at time 3.

Use WACC of 7%. 

Project K has original cost of -$2,000 at time zero; $300 at time 1; $ 850 at time 2: $700 at time 3; $1,200 at time 4.

Use WACC of 7%.

  1. Find payback period for both projects 
  2. Find NPV for both projects
  3. If the company favors projects with shorter paybacks, how much NPV will be forgone? 

 

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Finance

Capital Budgeting

Related Finance Q&A

Find answers to questions asked by students like you.

Q: Martha, Steve, and Lew form a partnership to operate a grocery store. For each of the following cont...

A: a) Computation:

Q: 1. Calculate the Expected Return and Risk measured in terms of standard deviation and Variance relat...

A: Formulas:

Q: 2. Answer the followings 9 marks:   a. How much should you pay for a $10,000 bond (face value) with ...

A: The question is based on the concept of time value of money. The time value of money explains the va...

Q: uppose that MNINK Industries’ capital structure features 65 percent equity, 6 percent preferred stoc...

A: Cost of equity is 11.70%Weight of equity is 65%Cost of preferred stock is 9.60%Weight of preferred s...

Q: Marme, Inc. has preferred stock selling for 99 percent of par that pays an annual coupon of 11 perce...

A: Preferred stock face value =$100 Annual coupon percentage =11% Selling price of stock =100*99%=$99 D...

Q: If the risk associated with bonds issued by a particular issuer decreases, how will this affect the ...

A: The relationship between price and yield are inverse. If yield increased, the price of the bond will...

Q: . Using 625 trading days of data, you estimated the daily log return follows a normal distribution w...

A: “Hi, as per our policy we will answer the first three parts of the question. Kindly repost the remai...

Q: Explain Taxable REIT Subsidiaries?

A: Taxable REIT subsidiary (TRS): It may be an organization straightforwardly or by implication possess...

Q: Week 4 Explain the operation of the contra proferentem rule. Is such a rule defensible in today's bu...

A: Hey, since there are multiple questions posted, we will answer the first question. If you want any s...

Q: What are the two preconditions for the use of EAC?

A: It is also called as EAC, is the yearly expense of owning and preserving a asset that is calculated ...

Q: Rachel is a financial investor who actively buys and sells in the securities market. Now she has apo...

A: “Hello, Since your question has multiple sub-parts, we will solve the first three sub-parts for you....

Q: An investor bought an 8% bond at 106. The bond would mature in 5 years. Compute the rate of yield to...

A: Since, no information on the coupon payments is given, I am solving the question considering semi-an...

Q: In the summer of 2018, the Gallatin Company was planning to financean expansion with a convertible s...

A: a) Computation: Financial specialists would believe that the premium over the buy cost would be with...

Q: What are some differences between debt-with-warrant financing and convertible debt?

A: Following are the differences between debt-with-warrant financing and convertible debt: In basic ter...

Q: Charlie Brown, a 25-year-old professional, invests $200 a month in the XYZ Capital Opportunity Fund,...

A: Calculation of amount Charlie will have at the completion of 60 years is shown below: Hence, the am...

Q: . According to the Capital Asset Pricing Model,what measures the amount of risk that an individual s...

A: Beta: Beta can be defined as the measure of instability of a separate stock relative to the unsystem...

Q: Simpson Corporation expects to sell the following number of units of their newest product:   Year...

A: Excel Spreadsheet:

Q: What is Sensitivity Analysis and why is it useful?

A: The sensitivity analysis is utilized to comprehend the impact of a lot of autonomous factors on some...

Q: Find the payment made by the ordinary annuity with the given present value. $82,087, monthly payment...

A: Click to see the answer

Q: A European put on Microsoft shares with an exercise price of $50 and maturity of 3 months is trading...

A: Click to see the answer

Q: What is the formula for the cost of preferred stock?

A: With flotation cost in %: Cost of preferred stock = Preferred dividend / (Price*(1-Flotation cost)

Q: Find the amount needed to deposit into an account today that will yield a typical pension payment of...

A: RATE 3.70% YEARS 24 PMT (MONTHLY PAYMENT) 15000 FUTURE VALUE $0

Q: Calvin invests $3,200 at an APR of 5.3% compounded monthly. Hobbes invests $3,150 at an APR of 6% co...

A: a)  Computation:

Q: Explain how bonds with warrants might help small, risky firms sell debt securities.

A: Warrants are provided for a few common shares as compared to convertibles because, in convertibles, ...

Q: How can we raise the capital specification for shadow banks and depository institutions and make the...

A: Capital specification is the capital or equity requirements that are to be maintained by the banks. ...

Q: The Mechanical Components Division manager asks you to recommend a make/buy decision on a major auto...

A: AW evaluation of make decision is done below: The formula sheet for the computation of the above ta...

Q: Your firm purchases goods from its supplier on terms of 2.3/14, net 40. a. What is the effective an...

A: Part a)Given that;Discount is 2.3 Payment days is 40 Discount period is 14

Q: Describe Caveats?

A: A notice that is given to the court that it must give caveator a fair hearing before making any deci...

Q: Using the constant dividend growth model for valuing common stock, if R goes down,   Question 24 o...

A: Using the constant dividend growth model, if R (required return) goes down the price of stock P0 wil...

Q: What are the three forms of market efficiency

A: It declares that money related markets are instructively effective, subsequently, an individual cann...

Q: What is the difference between total costs and marginal costs?

A: Total cost is the total economic cost of production. Variable cost changes according to the quantity...

Q: Do mergers create value? If so, who profits from this value?

A: Yes. Mergers are building values. A merger may be a corporate movement where two firms combine and o...

Q: . If a publicly traded company has a large numberof undiversified investors, along with some whoare ...

A: A publicly traded company or organizations or public companies that have sold their shares on a stoc...

Q: A truck was purchased for $58,000 and depreciates $6560 per year. Suppose that the vehicle is deprec...

A: Click to see the answer

Q: A common stock pays a current dividend of $2. The dividend is expected to grow at an 8-percent annua...

A: Calculate the current price of the stock as follows: Current price = Expected dividend / (Discount r...

Q: What is the Security Market Line (SML)? How isbeta related to a stock’s required rate of return?

A: Security market line (SML): It could be a line drawn on a graph that works as a graphical illustrati...

Q: A firm has fixed costs of $25,000 associated with the manufacture of lawn mowers that cost $480 per ...

A: Click to see the answer

Q: Sullivan-Swift Mining Company must install $1.2 million of newmachinery in its Nevada mine. It can o...

A: Total payment on the loan Following will be the cash flow statement for Loan Following will be the...

Q: 8.A firm has a debt ratio (defined as total liabilities to total assets) of 75%, $250,000 in debt, a...

A: Calculate the total assets as follows: Debt ratio = Total liabilities / Total assets 75% = $250,000 ...

Q: Is capital rationing always a bad thing? Explain

A: Capital rationing: Capital rationing is restriction bestowed upon new investments in the organizatio...

Q: Whatinformation is developed in the Capital MarketLine analysis and then carried over and used tohel...

A: Answer: Capital market line is the resulting linear equation is graphically represented by a Capital...

Q: Explain REIT Expansion and Growth?

A: Introduction: REIT is a corporation that maintains and manages income generating real estate propert...

Q: _______________________ happens when the economy is producing at its potential and unemployment is a...

A: Full employment GDP    It could be a phrase utilized to depict an economy that works at a perfect le...

Q: The client is aware agriculture can be risky due to price volatility and climate. Explain ways you c...

A: Capital projects are assessed by using capital budgeting methods such as net present value method (N...

Q: 4f

A: Payback period is the periods required to collect the initial amount from a capital project. Payback...

Q: You have the opportunity to make an investment that costs $1.000,000. If you make this investment no...

A: Excel Spreadsheet:

Q: How much should you save, monthly, in an account bearing 6.25%, compounded monthly, to save $30,000 ...

A: RATE (6.25%/12) 0.520833% PERIOD  (12*5) 60 PRESENT VALUE $0 FUTURE VALUE $30,000

Q: Butterfly Ballot Inc. common stock has the following projected rates of return (outcomes):  −10%, 20...

A: Excel Spreadsheet:

Q: 46. What is the equation for the Secure Market Line also known as CAPM?

A: CAPM: CAPM is also called as capital asset pricing model. It is method use to estimated the cost of ...

Q: What is the purpose of the accrual tranche?

A: The diverse CMO bunches are known as a tranche. Gathering tranche too known as Z tranche is the leas...