You recently went to work for Allied Components Company, a supplier of auto repair parts used in theafter-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chieffinancial officer (CFO), has just handed you the estimated cash flows for two proposed projects. ProjectL involves adding a new item to the firm's ignition system line; it would take some time to build up themarket for this product, so the cash inflows would increase over time. Project S involves an add-on to anexisting line, and its cash flows would decrease over time. Both projects have 3-year lives because Alliedis planning to introduce entirely new models after 3 years.Here are the projects' net cash flows (in thousands of dollars):Project L-$100Project S-$100Year0 (Initial Investment)1$10$702$60$50$80$20Depreciation, salvage values, net working capital requirements, and tax effects are all included in thesecash flows.The CFO also made subjective risk assessments of each project, and he concluded that both projectshave risk characteristics that are similar to the firm's average project. Allied's cost of capital/discountrate (r) is 10%.(ii)Calculate Each Project's IRR using Excel. According to IRR, which project(s) should be accepted ifthey are independent? mutually exclusive?(iii)should be accepted if the firm's maximum acceptable payback is 2 years, if Projects L and S areindependent, if Projects L and S are mutually exclusive? :Find the paybacks for Projects L and S. According to the payback criterion, which project(s)

Here, Discount rate = 10% To Find: IRR of each project =? Payback Period =?

You recently went to work for Allied Components Company, a supplier of auto repair parts used in the after-market with products from Daimler, Chrysler, Ford, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project L involves adding a new item to the firm's ignition system line; it would take some time to build up the market for this product, so the cash inflows would increase over time. Project S involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 3-year lives because Allied is planning to introduce entirely new models after 3 years. Here are the projects' net cash flows (in thousands of dollars): Project L -$100 Project S -$100 Year O (Initial Investment) 1 $10 $70 2 $60 $50 $80 $20 Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. The CFO also made subjective risk assessments of each project, and he concluded that both projects have risk characteristics that are similar to the firm's average project. Allied's cost of capital/discount rate (r) is 10%. (ii) Calculate Each Project's IRR using Excel. According to IRR, which project(s) should be accepted if they are independent? mutually exclusive? (ii) should be accepted if the firm's maximum acceptable payback is 2 years, if Projects L and S are independent, if Projects L and S are mutually exclusive? : Find the paybacks for Projects L and S. According to the payback criterion, which project(s)

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1mM