Question 1 parts a-d AGEC330_HW3 – Saved to my MacReferencesMailingsReviewViewO Tell meAa vAaBbCeDdEeAaBbCcDdEAaBbCcDdEeAaBbCcDdEeAaBbCcDdEev Dv A vBody TextList ParagraphNormalNo SpacingTable Paragr.Question 1a. Suppose you work for a small farm owner and you are asked to calculate a rate ofreturn fortwo mutually exclusive projects to determine which project should be selected. Project Ahas a total life of 3 years with a discount rate of 12% and Project B has a similar total lifewith a discount rate of 15%. The expected cash flows of the projects are given in the tablebelow:田YearProject AProject B-1,000-8001-2,000-7004,0003,0005,0001,500i.Would you use the IRR method or MIRR method? State why.ii.Applying the method chosen in part (i), what is the rate of return for each project?iii.Which project would you recommend to the owner? State why.b. A farmer is considering replacing a labor-intensive machine system with a more capital-intensive one. Adopting the new system is estimated to increase machinery operatingexpenses by about $21,000 per year. The new machinery will cost $30,000 plus $5,000 forshipping and installation; however, the trade-in value of the old system is $10,000. Adoptingthe new machinery will result in annual depreciation of 33.33% in year 1, 44.45% in year 2,14.81% in year 3, and 7.41% in year 4.The farmer forecasts that revenues will increase by $41,000 for each of the 4-year planninghorizon, with zero salvage value and a 20% tax rate. Find the initial cash outflow and theincremental cash flows for each year.Find the real value of a $10,000 payment due in 3 years if the expected inflationrate is 5%and the time preference rate is 3%. Find the real net present value.с.d. A cattle rancher can afford an annual debt service payment of $10,000. What is themaximum size loan that this rancher can borrow if the annual interest rate for a 10-yearloạn is 5%?ted States)O FocusMacBook Pro8000000DIIDD

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Suppose you work for a small farm owner and you are asked to calculate a rate ofreturn for two mutually exclusive projects to determine which project should be selected. Project A has a total life of 3 years with a discount rate of 12% and Project B has a similar total life with a discount rate of 15%. The expected cash flows of the projects are given in the table below: 田 Year Project A -1,000 Project B -800 1 -2,000 4,000 -700 3,000 1,500 5,000 i. Would you use the IRR method or MIRR method? State why. ii. Applying the method chosen in part (i), what is the rate of return for each project? ii. Which project would you recommend to the owner? State why.

Suppose you work for a small farm owner and you are asked to calculate a rate ofreturn for two mutually exclusive projects to determine which project should be selected. Project A has a total life of 3 years with a discount rate of 12% and Project B has a similar total life with a discount rate of 15%. The expected cash flows of the projects are given in the table below: 田 Year Project A -1,000 Project B -800 1 -2,000 4,000 -700 3,000 1,500 5,000 i. Would you use the IRR method or MIRR method? State why. ii. Applying the method chosen in part (i), what is the rate of return for each project? ii. Which project would you recommend to the owner? State why.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 35SP

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A2. (PaybackandNPV)Threeprojectshavethecashflowsgivenhere.Thecostofcapitalis10%. a. Calculate the paybacks for all three projects. Rank the projects from best to worst based on their paybacks. Calculate the NPVs for all three projects. Rank the projects from best to worst based on their NPVs c. Why are these two sets of rankings different? YEAR 0 1 2 3 4 5Project 1 −10 4 3 2 1 5 Project 2 −10 1 2 3 4 5 Project 3 −10 4 3 2 1 10
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For System A: the NPV -541,843 is used by discount rate. I don't understand NPV of project divided by PVIF (11%), Life of assets. Why can not NPV of project divdend by Life (4 years)? Thank you so much!
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