Suppose that cash flows of a project are given as follows: Year 0: Costs: $150,000. Year 1: Costs: $10,000. Savings: $60,000. Year 2: Costs: $10,000. Savings: $70,000. Year 3: Costs: $10,000. Savings: $90,000. Year 4: Costs: $30,000. Savings: $90,000. It is known that MARR is 10% and all cash flows occur throughout the year, what is the project's Payback Period? O 2 Years 2.5 Years O 3 Years 3.5 Years

Suppose that cash flows of a project are given as follows: Year 0: Costs: $150,000. Year 1: Costs: $10,000. Savings: $60,000. Year 2: Costs: $10,000. Savings: $70,000. Year 3: Costs: $10,000. Savings: $90,000. Year 4: Costs: $30,000. Savings: $90,000. It is known that MARR is 10% and all cash flows occur throughout the year, what is the project's Payback Period? O 2 Years 2.5 Years O 3 Years 3.5 Years

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 4CMA

See similar textbooks

Similar questions

Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is $17,100, and that for the pulley system is $22,430. The firm’s cost of capital is 14%. After-tax cash flows, including depreciation, are as follows: Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each.
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?
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
A project has the following cash flows. Determine the exact ROR for this project. Item Cash Flow First cost, $ 250,000 Annual Revenues, $/year 16,000 Additional Revenue, year 20, $ 600,000 O&M costs, $/year 2,500 Life, years 20
A company is considering a project with a cost of $248,000. The cash flows for the project are provided in the table below. If the required return for the project is 14.2%, what is the project's NPV? Year CF 1 $68,500 2 $72,800 3 $75,300 4 $81,400 5 $78,200 $81,422 $128,200 $6,481 $222,838 $254,481
The cash flows for a project are £3,000 in Year 1, £5,000 for Year 2, and £4,000 in Year 3. The project pays back for itself in 2.5 years. The initial cost of the project was: a) £10,000 b) £8,000 c) £12,000 d) £11,000
Project A costs $1,000, and its cash flows are the same in Years 1 through 10. Its IRRis 16%, and its WACC is 8%. What is the project’s MIRR?
A project is expected to generate a cash flow of £250 at the end of each of three consecutive years, as illustrated below: End of year 1 2 3 Cash flow £250 £250 £250 The project manager uses a discount rate of 10% to evaluate the project. Which of the following statements is/are incorrect? a. Economic capital at the start of year 1 (K0) equals £621.7 (rounded to one decimal). b. If all cash flows were distributed when received (i.e. if payout was 100%), economic income in year 2 (Y2) would equal £62.2 (rounded to one decimal). c. If the project manager did not distribute any of the project cash flows (i.e. if payout was 0%), the project’s economic capital would not depreciate during year 1. d. If the project manager distributed all of the project cash flows (i.e. if payout was 100%), the project’s economic capital would depreciate over time.
Monson Company is considering three investment opportunities with cash flows as described below:   Project A: Cash investment now $15,000   Cash inflow at the end of 5 years $21,000   Cash inflow at the end of 8 years $30,000 Project B: Cash investment now $11,000   Annual cash outflow for 5 years $3,000   Additional cash inflow at the end of 5 years $25,000 Project C: Cash investment now $21,000   Annual cash inflow for 4 years $8,000   Cash outflow at the end of 3 years $10,000   Additional cash inflow at the end of 4 years $10,000 Required: Compute the net present value of each project assuming Monson Company uses a 12% discount rate.
Monson Company is considering three investment opportunities with cash flows as described below:   Project A: Cash investment now $15,000   Cash inflow at the end of 5 years $21,000   Cash inflow at the end of 8 years $30,000 Project B: Cash investment now $11,000   Annual cash outflow for 5 years $3,000   Additional cash inflow at the end of 5 years $25,000 Project C: Cash investment now $21,000   Annual cash inflow for 4 years $8,000   Cash outflow at the end of 3 years $10,000   Additional cash inflow at the end of 4 years $10,000 needed Compute the net present value of each project assuming Monson Company uses a 12% discount rate.
What is the profitability index of a project that costs $10, 000 and provides cash flows of $ 3,500 in years 1 and 2 and $5, 500 in years 3 and 4? The discount rate is 8%.