S09-26 Problems with IRR [LO5] A project has the following cash flows: Year Cash Flow $59,000 - 34,000 - 39,000 1 a. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the NPV of this project if the required return is 12 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV of the project if the required return is 0 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

S09-26 Problems with IRR [LO5] A project has the following cash flows: Year Cash Flow $59,000 - 34,000 - 39,000 1 a. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the NPV of this project if the required return is 12 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV of the project if the required return is 0 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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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Y8 For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 −$ 149,000 1 67,000 2 72,000 3 56,000 At a required return of 8 percent, what is the NPV of the project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. At a required return of 21 percent, what is the NPV of the project? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Q7 - Consider the following project: Year Cash Flow 0 – $ 3,024 1 17,172 2 – 36,420 3 34,200 4 – 12,000 a) Determine the IRR (s) for this project. b) At which rates of return will the project be acceptable?
17. Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B)0 −$291,000 −$41,6001 37,000 20,0002 55,000 17,6003 55,000 17,2004 366,000 14,000 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?
E7.7 (LO 3, 4), AP Shruti Shrills is considering an expansion of one of its existing buildings to add more manufacturing space for its kid-friendly noisemakers. Several possible scenarios exist for future cash flows, as follows. 1. Construction costs of $500,000; steady sales and costs each year, netting to an annual operating cash inflow of $70,000; the expansion would have no salvage value at the end of its 10-year useful life (the building would be repurposed for a different product).2. Construction costs of $500,000; rising and then falling net cash flows each year for 10 years, as follows: $50,000 for the first 2 and last 2 years, $175,000 for years 3–5, and $100,000 for years 6–8.3. Construction costs of $700,000; no cash flows in year 1, $75,000 in years 2 and 3, $150,000 in year 4, $100,000 in years 5–8, and $50,000 in the last 2 years.Required 1. Calculate the simple payback period for all three scenarios.2. Assume that Shruti will only accept investments with a payback period…
A3 44 Given the following project information, calculate the after-tax operating cash flow (ATOCF) using the four approaches of calculating operating cash flow. Project cost = $950,000 Project life = five years Projected number of units sold per year = 10,000 Projected price per unit = $200 Projected variable cost per unit = 150 Fixed costs per year = $150,000 Required rate of return = 15% Marginal tax rate = 35% Depreciation = Straight-line to zero over five years (ignore half-year rule)
MIRR [LO6”] Solo Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 -$47,000 1 $16,900 2 $20,300 3 $25,800 4 $19,600 5 -$9,500 The company uses an interest rate of 10 percent on all of its projects. Calculate the MIRR of the project using all three methods.
A3 5d 5. We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%. The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions: d. What is the real rate of return based on the exact Fisher equation?
Expected Cash FlowsYear Project A Project B0 -400 -5751 95 1502 110 2003 118 2504 125 2755 140 2306 150 180a. If you were told that each project’s cost of capital was 10%, which project should be selected using the NPV criteria?
A3 5e 5. We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%. The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions: e. What are the real cash flows from Project A and Project B?
Project X has the following cash flows: C0 = -1,250, C1 = 750, and C2 = 900. If the IRR of the project is 20 percent and if the cost of capital is 25 percent, you would need more information accept the project reject the project be indifferent
7) Consider the following project: Year Cash Flow 0 – $ 3,024 1 17,172 2 – 36,420 3 34,200 4 – 12,000 Year Cash Flow 0 -3,024 1 17,172 2 -36,420 3 34,200 4 -12,000 a) Determine the IRR (s) for this project. Do not use Excel sheet b) At which rates of return will the project be acceptable?
Union pacific is considering a project that has the following cash flow and WACC data. What is the projects MIRR? Note that a projects MIRR can be less than the WACC (and negative), in which case be rejected. WACC: 9.50% Year 0 1 2 3 Cash flows -1,000, 450, 450, 450

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