None Projects S and L are equally risky, mutually exclusive, and have normal cash flows.Project S's IRR is 15%, while Project L's IRR is 12%. The two projects have the sameNPV when the WACC is 7%. Which of the following statements is CORRECT?If the WACC for both projects is 10%, Project S will have a larger NPV thanProject L.If the WACC for both projects is 18%, both projects will have positive NPVs.If the WACC for both projects is 13%, Project L will have a larger NPV thanProject S.If the WACC for both projects is 9%, both projects will have negative NPVs.If the WACC for both projects is 6%, Project S will have a larger NPV thanProject L.

If WACC for both projects is 10%, Project S will have a higher NPV than Project L. This statement is…

Answered: Projects S and L are equally risky,…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 7P

See similar textbooks

Similar questions

Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
Projects S and L are equally risky, mutually exclusive, and have normal cash flows. Project S has an IRR of 15%, while Project L’s IRR is 12%. The two projects have the same NPV when the WACC is 7%. Which of the following statements is CORRECT? Group of answer choices If the WACC is 10%, both projects will have positive NPVs. If the WACC is 6%, Project S will have the higher NPV. If the WACC is 13%, Project S will have the lower NPV. Project S’s NPV is more sensitive to changes in WACC than Project L's. If the WACC is 10%, both projects will have a negative NPV.
The management of NUBD Co. is considering three investment projects-W, X, and Y. Project W would require an investment of P21,000, Project X of P66,000, and Project Y of P95,000. The present value of the cash inflows would be P22,470 for Project W, P73,920 for Project X, and P98,800 for Project Y.Rank the projects according to the profitability index, from most profitable to least profitable. Y,W,X X,Y,W X,W,Y W,Y,X
BURNER Co. is considering two mutually exclusive projects, Project A and Project B. The projects have the following cash flows: Project A Project B -100,000 -190,000 30,000 30,000 35,000 35,000 40,000 100,000 40,000 100,000    The two projects are equally risky. At what weighted average cost of capital would the two projects have the same net present value (NPV)?
Burner Co. is considering two manually exclusive projects, Project A and Project B. the projects have the following cash flows:                                                 Project A                              Project B                                                                              Year                                       Cashflow                             Cashflow                                                                              0                                              -100,000                               -190,000                                                                               1                                              30,000                                   30,000                                                                                   2                                              35,000                                   35,000                                                                                   3…
Central Energy is considering two mutually exclusive projects, Project Red and Project The projects have the following cash flows: Project Red Project White Year    Cash Flows      Cash Flows 0 -$1,000 -$1,000 1 100 700 2 200 400 3 600 200 4 800 100 Assume that both projects have a 10 percent WACC. What is the internal rate of return of the project that has the highest NPV? 18.24% 10.00% 21.83% 14.30% 21.96%
Sandia corporation is considering two independent projects. For our purposes, we will call them projects A and B. Project A is expected to cost $40,019, and project B is expected to cost $44,980. Each project's expected cash flows are presented below. Both project A and B have similar risks to all other projects at Sandia. And the weighted average cost of capital for Sandia is 6.94%. Calculate the net present value of both projects, and enter in the box below how much the value of the firm is expected to increase based on this capital budget (please enter the amount to the nearest penny). Project A Project B Year 1 $8,075 $9,630 Year 2 $11,327 $11,089 Year 3 $13,469 $10,454 Year 4 $11,858 $14,908 Year 5 $13,694 $15,732
Using the net present value method, the present value of cash inflows for Project A is P44,000 and the present value of cash inflows of Project B is P24,000. If Project A and Project B require initial investments of P40,000 and P20,000, respectively, and have the same useful life, what is the project that should be accepted assuming the projects are mutually exclusive projects?
Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC: 10.75% Year 0 1 2 3 4 Cash flows -$975 $650 $610 $570 $530 a. 1.22 years b. 2.78 years c. 1.78 years d. 2.22 years e. 1.11 years Moerdyk & Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the one with the higher IRR will also have the higher NPV, i.e., no conflict will exist. WACC: 8.75% 0 1 2 3 4 CFS -$775 $550 $390 $230 $70 CFL -$775 $115 $275 $435 $595 a. $0.00 b. $37.51 c. $34.49…
Your division is considering two projects with the following cash flows (inmillions): a. What are the projects’ NPVs assuming the WACC is 5%? 10%? 15%?b. What are the projects’ IRRs at each of these WACCs?c. If the WACC was 5% and A and B were mutually exclusive, which project would youchoose? What if the WACC was 10%? 15%? (Hint: The crossover rate is 7.81%.)
Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 13%? Cash Flow Project A Project B Year 0: –$17,500 Year 0: –$45,000 Year 1: 10,000 Year 1: 10,000 Year 2: 16,000 Year 2: 17,000 Year 3: 15,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 $9,656 $14,163 $10,944 $12,875 $10,300
Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%? Cash Flow Project A Project B Year 0: –$12,500 Year 0: –$45,000 Year 1: 8,000 Year 1: 10,000 Year 2: 14,000 Year 2: 17,000 Year 3: 13,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 $11,776 $9,421 $7,066 $10,598 $7,654 Praxis Corp. is considering a three-year project that has a weighted average cost of capital of 11%…

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS