Assume that Project A has an IRR of 30% and NPV of net cash flows at MARR is $50,000.And that Project B has an IRR of 55% and NPV of net cash flows at MARR is $25,000.Which project would you implement first if financing is available and project technical life is thesame?Lütfen birini seçin:O a. cannot be decidedO b. Project BO c. Project AO d. Neither Project A or Project B

Net present value is the difference between the present value of cash flow and initial investment of…

Answered: same? Lütfen birini seçin: O a. cannot…

Business

Finance

same? Lütfen birini seçin: O a. cannot be decided O b. Project B O c. Project A O d. Neither Project A or Project B

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

See similar textbooks

Related questions

Q: Which of the following statements is false? A. Asset-backed securities (ABS) may be backed by…

A: A financial asset-backed securities (ABS) is a form of financial investment that is backed by a pool…

Q: An equipment has an original cost and book value of 2,100,000 and 1,560,000 respectively. It has…

A: Sound value of an asset is the depreciated replacement cost of the asset. This value differs from…

Q: Differentiate between Closed-End and Open-End funds.

A: Various options are available for investment through different channels. On the basis of different…

Q: Achtung Co uses 3machines to finalize the product. The machines got outdated and it has been…

A: The Net Present Value: The net present value or the NPV is a technique used to assess the…

Q: A two-year project has sales of $582,960, cash costs of $411,015, and depreciation expense of…

A: Depreciation expense = $68,109 Tax rate = 0.24 Depreciation tax shield is also known as saving of…

Q: You deposit $4000 into a retirement account each year. The account pays 8℅ interest. How much will…

A: Annual deposit (A) = $4000 Interest rate (r) = 0.08 Period (p) = 25 years Amount in 25 years (P25) =…

Q: ooking at a $523,000 home. To avoid private mortgage insurance (PMI), she put 20% down and the…

A: LTV that is the loan to value ratio shows that how much can give the loan against property and is…

Q: Long Life Floors is expected to pay an annual dividend of $6 a share and plans on increasing future…

A: To calculate the price of stock 5 years from now we will use the following information Stock price…

Q: Bernard co. has 7% coupon bonds on the market that have 13 years left to maturity. The bonds will…

A: Current bond price will be equal to present value of Maturity Value and present value of interest…

Q: Debt payments of $1,650 and $2,400 are due in five months and nine months, respectively. What single…

A: Payment in five months (m5) = $1,650 Period of first payment (t1) = 5 months Payment in nine months…

Q: 1) If you deposit $4,000 today in a bank account and the interest is compounded annually at 10…

A: Time value of money (TVM) refers to the method used to measure the amount of money at different…

Q: Year Investment Cash Inflow $13,000 $10,000 $1,000 $2,000 $2,500 $4,000 $5,000 $4,000 $5,000 $4,000…

A: Payback period = initiative investment/Annual cash inflows Here cash inflows per year is not…

Q: Using the spot and outright forward quotes in the table below, determine the corresponding bid-ask…

A: Answer - Formula for Bid Ask Spreads in Points = Month Ask Quote - Months Bid Quote

Q: What is the annualized investment rate% on a Treasury bill that you purchase for $8000 that will…

A: T-bills refers to a debt securities or government bonds issued by the central bank on behalf of the…

Q: Q.1.3 Banks are promoting online banking to their customers. Based on the statement above and…

A: Q.1.3. A customer can make financial transactions via the Internet by using online banking. Online…

Q: Loras College’s bond is currently trading at a spread of 55.2 basis points to Treasuries and the…

A: Spread of bond tells that how much yield on bond is above the benchmark yield that yield on treasury…

Q: 6. Find the amount at the end of 15 years if P 55 000 is invested at an interest rate of 5% for the…

A: Future value of the invested value may be calculated using following formula Final Amount…

Q: has an expected return of 14%, its stock is currently trading at a price of does this indicate the…

A: Growth rate of dividends can be found from constant growth of dividend model assuming that dividend…

Q: At an interest rate of 15% per year, an investment of $100,000 one year ago is equivalent to how…

A: Future Value = Present value*(1 + Interest rate)n Where n = time period

Q: a. If the first payment is made four years from now, what is this grand prize really worth today?…

A: Present Value is the value of money in today at zero period for all the payments which is received…

Q: BMW just paid an annual dividend of 2 per share. Management has promised shareholders to increase…

A: Last dividend (D0) = 2 Growth rate (g) = 0.10 Required return (r) = 0.15 Current price per share = ?…

Q: 20) BMW just paid an annual dividend of 3 per share. Management has promised shareholders to…

A: The Current Price per Share will be calculated by Gorden's Model. The current price per share is…

Q: BCD Company offer its investors option contracts to buy their shares at a price of P50. Currently,…

A: Given, The spot price is P60 Risk free rate is 8.25%

Q: Kristine bought a smartphone worth Php72,000 and made a downpayment of Php15,000. The remaining…

A: Present Value of Ordinary Annuity refers to the concept which dictates the discounted value of a sum…

Q: Given fixed costs is Rs 1,00,000 selling price per unit is Rs 10 and variable cost per unit is Rs 6.…

A: As you have asked more than one question, we will answer the first question for you. To get answers…

Q: Art purchase a house and lot worth ₱1,410,000, he made a down payment of ₱150, 000 and the remaining…

A: A home loan taken from a bank or a financial institution is termed as mortgage. The home and the…

Q: A firm will start paying dividends 3 years from now and thereafter that will be expected to grow 5.3…

A: The intrinsic value of the stock can be found using the dividend discount model. As per DDM, the…

Q: Zion Inc. will pay a $4.25 per share dividend in year 5. The company pledges to increase its…

A: The Current Price per Share will be calculated by Gorden's Model. The current price per share is…

Q: 1.Beloit Co. is a manufacturer of mini-doughnut machine makers. Early in 2018 a customer asked…

A: Answer - Salvage value = 12% * P, where P is Purchase price Cash flow = $140,000 Rate of return =…

Q: How are the Dow Jones industrial Average and the S&P 500 index different?

A: 1. DJIA tracks the stock prices of 30 large cap US companies. 2.DJIA is a price-weighted index 3.…

Q: al-currency bond makes coupon interest payments in one currency and the principal repayment at…

A: Dual currency bond as name suggest it work in two currencies due to which holder of bond is exposed…

Q: Data from The Economist BigMac index from January 2022 shows that the local price of a Big Mac in…

A: Purchasing power parity says that purchase power of both countries must be equal and exchange rate…

Q: Why would a company's ROA be positive and its ROE negative

A: ROA refers to return on assets. ROE refers to return on equity.

Q: The equivalent annual-pay yield-to-maturity (YTM) for a 5.28% coupon monthly-pay bond is closest to…

A: Annual yield to maturity = 0.0528 Monthly yield to maturity (YTM) = 0.0044 (i.e. 0.0528 / 12) Number…

Q: Identify which anti-hostile takeover strategies are being described. [S1] A merger will only push…

A: When a prospective merger or acquisition needs to be thwarted then there are several anti-hostile…

Q: that today is December 31, 2021. Use the following information that applies to Harrison Corporation…

A: Corporate valuation approach use the free cash flow available and that is discounted on WACC and…

Q: You are considering buying a stock that will pay a dividend of $2.3 next year. The dividend is…

A: To calculate the stock price we will use the following formula Stock price = D1/(R-G) Where D1-…

Q: A government bond has coupon yield 10.9%, face value of 4000 EUR, and maturity in 2026. The coupons…

A: Face Value = 4000 N = 4 years Yield = 5% Coupon = Coupon Rate * Face Value = 10.9%× 4000 = 436

Q: Anderson Manufacturing Co., a small fabricator of plastics, needs to purchase an extrusion molding…

A: As per the information provided: Principal (P) = $140,000 n = 5 g = 9% or 0.09 i = 13% or 0.13

Q: Steve wants to have $5,000, after 3 years, in a savings account that pays 4% interest compounded…

A: Present value of annuity is the current value of the future payments that are calculated using the…

Q: Income Statement: A small food stall owned by Ms. Lopez is located at San Fernando Pampanga. She…

A: It is given that: Sales in 2018- 285000 – increase by 10% Cost of goods sold – 10% of projected…

Q: With a decrease in time preference, the supply of loanable funds will increase. Select one: True…

A: Loanable funds includes all forms of credit, such as loans, bonds, or savings deposits. There is an…

Q: Ritter Sports Industries has preferred stock outstanding with a par value of $100. The stock pays a…

A: To calculate the nominal rate of return we will use the below formula Nominal rate of return =…

Q: The following information is available on two mutually exclusive projects. All numbers are in ‘000s.…

A: NPV Method: Working in '000s and calculation are done in excel so there is no intermediate rounding:…

Q: 13. A discounted loan of $3,000 at a simple discount rate of 6.5% is offered to Mr. Jones. If the…

A: The amount of discount depends on the period and interest rate and amount of the loan taken and cash…

Q: The future value of $3000 deposited a year of 4 years earning 6 percent would be

A: The question is related to Time Value of money. Future Value is the value at some future time of a…

Q: company's discount rate is 12%, then the net present value for this investment is closest to:…

A: NPV= Present value of cashinflows - Present value of cashoutflows.

Q: Consider the following cash flows. The interest rate is 10%. What is the total wealth after 2 years…

A: It is given that: Year Cash flow 1 150 2 120 3 100 4 200 And the Expected…

Q: Calculate the accounting rate of return (ARR) for both server investments. Server A __________…

A: Net present value (NPV) of an alternative/project refers to the variance between the initial…

Q: Projects A and B are mutually exclusive. If project A, the larger project, has an approximate ERR of…

A: The economic rate of return (ERR) is a rate of return being used in capital budgeting to monitor and…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Assume that Project A has an IRR of 30% and NPV of net cash flows at MARR is $50,000.
And that Project B has an IRR of 55% and NPV of net cash flows at MARR is $25,000.
Which project would you implement first if financing is available and project technical life is the
same?
Lütfen birini seçin:
O a. cannot be decided
O b. Project B
O c. Project A
O d. Neither Project A or Project B

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

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.
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?
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment or $28.000 and is expected to generate the following cash flows: If the discount rate is 5% compute the NPV of each project and make a recommendation of the project to be chosen.
The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The wind turbines require an investment of 887,600, while the biofuel equipment requires an investment of 911,100. No residual value is expected from either project. Instructions 1. Compute the following for each project: A. The net present value. Use a rate of 6% and the present value of an annuity table appearing in Exhibit 5 of this chapter. B. A present value index. (Round to two decimal places.) 2. Determine the internal rate of return for each project by (A) computing a present value factor for an annuity of 1 and (B) using the present value of an annuity of 1 table appearing in Exhibit 5 of this chapter. 3. What advantage does the internal rate of return method have over the net present value method in comparing projects?