Rana Company has $12,000,000 to invest and wishes to evaluate the following three projects. Years A ($) B ($) C ($) 0 (5,000,000) (2,000,000) (7,000,000) 1 2,000,000 600,000 4,000,000 2 2,000,000 3,000,000 3 2,000,000 2,000,000 500,000 4 1,000,000 600,000 800,000 cost of capital 12% 12% 12% Required: Which project(s) would you recommend using: a. Payback Period (PP) in nominal and discounted values. b. Net Present Value (NPV) c. Profitability Index (PI) d. The internal rate of return (IRR) (hint: use 10% for X and 20% for the other projects)

Rana Company has $12,000,000 to invest and wishes to evaluate the following three projects. Years A ($) B ($) C ($) 0 (5,000,000) (2,000,000) (7,000,000) 1 2,000,000 600,000 4,000,000 2 2,000,000 3,000,000 3 2,000,000 2,000,000 500,000 4 1,000,000 600,000 800,000 cost of capital 12% 12% 12% Required: Which project(s) would you recommend using: a. Payback Period (PP) in nominal and discounted values. b. Net Present Value (NPV) c. Profitability Index (PI) d. The internal rate of return (IRR) (hint: use 10% for X and 20% for the other projects)

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 19PROB

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A business has £18 million available for capital investment in the current year, but has the following five projects: Project Initial Investment £m NPV £m A 2.5 0.750 B 5.0 2.575 C 10.0 2.350 D 2.5 0.500 E 10.0 0.825 Which projects should the company choose? Projects can be scaled down (divisible) if necessary.
Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, that both cost $100,000. The company's board of directors has set a 4-year payback requirement the cost of capital is 10%. The project cash flows are shown in the following table: Cash flows (CF Subscript t) Year Project A Project B 1 $30,000 $85,000 2 $30,000 $50,000 3 $30,000 $10,000 4 $30,000 $10,000 5 $30,000 $10,000 6 $30,000 $10,000 a. Calculate the payback period for each project. Rank the projects by payback period. b. Calculate the NPV of each project. Rank the project by NPV. c. Calculate the IRR of each project. Rank the project by IRR. d. Make a recommendation.
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A project proposal submitted to you for evaluation follow: Investment, including depreciable assets of P495,000 with economic life of six years) - Php 865,000 Annual sales revenue - PhP 750,00 Variable cost of sales - 43.5% Annual cash operating costs - 295,000 Income tax rate - 25% Required: a. Annual cash return, payback period and internal rate of return. b. If the corporate cost of capital is 8%, should the project be implemented ?

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Years	A ($)	B ($)	C ($)
0	(5,000,000)	(2,000,000)	(7,000,000)
1	2,000,000	600,000	4,000,000
2	2,000,000		3,000,000
3	2,000,000	2,000,000	500,000
4	1,000,000	600,000	800,000
cost of capital	12%	12%	12%