Suppose a company like Target Distribution Centers is looking at 3 mutually exclusive alternatives for locations to build their new Distribution Center. Scenario 1 is a DC in Akron. CAPEX Cost $18 million, project NPV $3.8 million Scenario 2 is a DC in Canton. CAPEX is $14.2 million, project NPV is $2.8 million Scenario 3 is a DC in Warren, CAPEX is $11.8 million, project NPV is $3.3 million What would be your recommendation? Group of answer choices a. Scenario 2 b. Scenario 3 c. None of the above d. All of the above e. Scenario 1

Suppose a company like Target Distribution Centers is looking at 3 mutually exclusive alternatives for locations to build their new Distribution Center. Scenario 1 is a DC in Akron. CAPEX Cost $18 million, project NPV $3.8 million Scenario 2 is a DC in Canton. CAPEX is $14.2 million, project NPV is $2.8 million Scenario 3 is a DC in Warren, CAPEX is $11.8 million, project NPV is $3.3 million What would be your recommendation? Group of answer choices a. Scenario 2 b. Scenario 3 c. None of the above d. All of the above e. Scenario 1

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...

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Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500 and has cash flows of $678, $652, $347, $111, $54, $16 in each of the next 6 years. Project Y also costs $1500, and generates cash flows of $738, $693, $405 for the next 3 years, respectively. WACC=11%.If it possible for conflicts to exist between the NPV and the IRR when independent projects are being evaluated? Explain your answer.
Lithium Inc. is considering two mutually exclusive projects, A & B. project cost $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three and $45,000 in year four. Lithium Inc.’s required rate of return for these projects is 10%. The modified internal rate of return for project A is? A. 29.63% B. 19.19% C. 26.89% D. 24.18%
A). Amazing Ltd. is a popular café chain in Sydney. The management is considering the following two mutually exclusive projects available: Year Project Mocha ($) Project Latte ($) 0 -50,000 -65,000 1 24,000 22,000 2 24,000 21,000 3 17,000 30,000 4 11,000 37,000 5 20,000 24,000 (i) What is the crossover rate? (ii) What is the NPV for these two projects at crossover rate? (iii)Which project is better if the required return is above crossover rate? Why? (Round your answer to at least 2 decimal points.)
Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%. The internal rate of return for Project B is a.30.79%. b.36.77%. c.29.74%. d.35.27%.
Panhandle Corp. is considering three projects. Each project has an initial outlay of $175,000. Project A is expected to earn $53,000 per year for four years. Project B is expected to earn $233,000 in year four. Project C is expected to earn $75,000 in year one, $65,000 in year two, $40,000 in year three, $25,000 in year four. The WACC is 6%. What is the difference between the IRR of B and C? B is larger by 0.94436% C is larger by 0.94436% B is larger by 0.04629% C is larger by 0.04629%
Axis Corp. is studying two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $40,000 and generate cash inflows of $20,000 per year for the next 3 years. Project Thompson replaces the existing system; it will cost $285,000 and generate cash inflows of $65,000 per year for 6 years. Using a(n) 9.07% cost of capital, calculate each project's NPV, and make a recommendation based on your findings. The NPV of project Kevin is ____ The NPV of project Thompson is _____ Which project should the company choose?
For mutually exclusive projects, which one should a firm undertake? McDonalds could open a new store either at location A or location B. Due to limited funds, the company can only open one store. The initial costs are the same. Location A: the future cash flow will be 630,000 with probability 50%, and 210,000 with probability 50%. Location B: the future cash flow will be 680,000 with probability 40%, and 200,000 with probability 60%.
Delish Co, a manufacturer of cake and bread, would like to increase its market share inSumatera. In order to do so, Delish has decided to locate a new factory in Medan. Delish will either buy or lease a site, depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings:• Building X: Purchase for $2,600,000 cash. This building is larger than needed;however, the excess space can be sublet for 25 years at a net annual rental of $24,000.Rental payments will be received at the end of each year. Delish has no objection tobeing a landlord.• Building Y: Purchase for a cash price of $2,440,000, useful life 25 years.• Building Z: Lease for 25 years with annual lease payments of $280,000 being made atthe beginning of the year.Required:In which building would you recommend that Delish Co. locate, assuming a 12% cost offunds? (give the complete calculation)
You are the project manager for Becker Enterprises, LTD. and have been asked to analyze two alternatives for the company’s newest plastics The two alternatives, A and B, will perform the same task, but Alternative A will cost $80,000 to purchase while Alternative B will cost only $55,000. Moreover, the two alternatives will have very different cash flows and useful lives. The after-tax costs for the two projects are as follows: Year A B 0 $(80,000) $(55,000) 1 (20,000) (6,000) 2 (20,000) (6,000) 3 (20,000) (6,000) 4 (20,000) 5 (20,000) 6 (20,000) 7 (20,000) Calculate each project’s EAC, given a 10% discount Which of the alternatives do you think the company should select and why?
Brown Mack Ltd currently has two large manufacturing divisions that share a single plant. Brown Mack owns the plant but has calculated that $6 million of overhead expenses should be allocated to the two equal-sized divisions. If Brown Mack starts a third manufacturing division, of equal size to the other two divisions, then what overhead cost should the new division take into account on its capital budgeting cash flow analysis? Round your answer to 2 decimal places. E.g. if the final value is $12345.8342, please type 12345.83 in the answer box (do not type the dollar sign).
Axis Corp. is studying two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $70,000 and generate cash inflows of $30,000 per year for the next 3 years. Project Thompson replaces the existing system; it will cost $215,000 and generate cash inflows of $50,000 per year for 6 years. Using a(n) 10.39% cost of capital, calculate each project's NPV, and make a recommendation based on your findings.
A production machinery system may be purchased either from either Hillebrand Corporation or Lotux Corporation. The Hillebrand system has an IRR of 30.5 and the Lotux system has an IRR of 40.8. The two projects happen to have equal net present value at a discount rate of 22.25%. The firms cost of capital is 18 percent. Explain with a graph, which project creates more value and which project should be chosen.