TABLE P10-16 Mutually Exclusive Alternatives for Problem 10-16 Equivalent Annual Cost of Project Expected Annual Flood Damage Alternative Annual Benefits I. No flood control $100,000 II. Construct levees $30,000 80,000 $112,000 III. Build small dam $100,000 5,000 110,000
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Consider the mutually exclusive alternatives in the shown table. Which alternative would be chosen according to these decision criteria?Solve, a. Maximum benefit b. Minimum cost c. Maximum benefits minus costs d. Largest investment having an incremental B–C ratio larger than one e. Largest B–C ratio Which project should be chosen?
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- Rana Company has $12,000,000 to invest and wishes to evaluate the following three projects. Years A ($) B ($) C ($) 0 (5,000,000) (2,000,000) (7,000,000) 1 2,000,000 600,000 4,000,000 2 2,000,000 3,000,000 3 2,000,000 2,000,000 500,000 4 1,000,000 600,000 800,000 cost of capital 12% 12% 12% Required: Which project(s) would you recommend using: a. Payback Period (PP) in nominal and discounted values. b. Net Present Value (NPV) c. Profitability Index (PI) d. The internal rate of return (IRR) (hint: use 10% for X and 20% for the other projects)Question 16 The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted. Project: A B C . Initial cost R100 000 R115 000 R90 000 Expected life 5 years 5 years 4 years Scrap value R5 000 R7 500 R4 000 Cash-inflows R R R End year 1 40 000 50 000 27 500 2 35 000 35 000 32 500…Question 15 The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted. Project: A B C . Initial cost R100 000 R115 000 R90 000 Expected life 5 years 5 years 4 years Scrap value R5 000 R7 500 R4 000 Cash-inflows R R R End year 1 40 000 50 000 27 500 2 35 000 35 000 32 500…
- Apply WACC in NPV. Brawn Blenders has the following incremental cash flow for its new project: Category T0 T1 T2 T3 Investment −$4,886,000 Net working capital change −$359,000 $359,000 Operating cash flow $1,731,000 $1,731,000 $1,731,000 Salvage $439,000 Should Brawn accept or reject this project at an adjusted WACC of 9.71%, 11.71%, or 13.71%? Should Brawn accept or reject this project at an adjusted WACC of 9.71%? (Select the best response.) A. The project should be accepted because the NPV is positive. The benefits exceed the costs in today's dollars. B. The project should be rejected because the NPV is negative. The costs exceed the benefits in today's dollars.Information on four potential projects is given below: Projects A B C D Investment required $(350,000) $(390,000) $(450,000) $(480,000) Present value of cash inflows 535,000 590,000 670,000 730,000 Net present value $185,000 200,000 $220,000 $250,000 Ignore income taxes Required: Compute the project profitability index for each project. Rank the projects in terms of preference.Consider the following financial data for an investment project:• Required capital investment at n = 0: $ 100,000• Project service life: 10 years• Salvage value at n = 10: $15,000• Annual revenue: $150.000• Annual O&M costs (not including depreciation): $50.000• Depreciation method for tax purpose: seven-year MACRS• In come tax rate: 40%.Determine the project cash flow at the end of year 10.(a) $69.000(b) $73.000(c) $66.000(d) $67.000
- Exhibit 9-2The following data are projected for a possible investment project: 1 2 3 4 Revenues $130,000 $150,000 $170,000 $190,000 Cost of Goods Sold $ 32,000 $ 38,000 $ 44,000 $ 50,000 Depreciation $ 70,000 $ 50,000 $ 30,000 $ 10,000 EBIT $ 28,000 $ 62,000 $ 96,000 $130,000 Refer to Exhibit 9-2. The project requires an initial investment of $340,000 on equipment. Working capital is anticipated to be variable at 13% of revenues; the working capital investment must be made at the beginning of each period, and will be recovered in full at the end of year 4. Equipment will be sold at its book value at the end of year 4. The tax rate is 38%.What is the net cash flow to the firm in year 4? Group of answer choices $164,600 $195,300 $295,300 $180,600Exhibit 9-2The following data are projected for a possible investment project: 1 2 3 4 Revenues $130,000 $150,000 $170,000 $190,000 Cost of Goods Sold $ 32,000 $ 38,000 $ 44,000 $ 50,000 Depreciation $ 70,000 $ 50,000 $ 30,000 $ 10,000 EBIT $ 28,000 $ 62,000 $ 96,000 $130,000 Refer to Exhibit 9-2. The project requires an initial investment of $340,000 on equipment. Working capital is anticipated to be variable at 13% of revenues; the working capital investment must be made at the beginning of each period, and will be recovered in full at the end of year 4. Equipment will be sold at its book value at the end of year 4. The tax rate is 38%.What is the net present value of the project if the firm’s discount rate is 13%? Group of answer choices -$40,373 $25,212 -$18,867 $22,797Compute the NPV based on the following data Life of project 10.00 year Required Investment 500,000.00 Required Rate of Return 8% Required Working Capital to be released at the end of the project 35,000.00 Salvage value of equipment at end of year 10 12,000.00 Required overhaul in year 5 60,000.00 Annual increase in net income for this project 85,000.00 Year Cash flow 0 1 2 3 4 5 6 7 8 9 10 Net Present Value IRR Should we accept this project:?