FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
10th Edition
ISBN: 9781337910972
Author: Brigham
Publisher: CENGAGE L
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Chapter 11, Problem 12P
Summary Introduction
To calculate: The IRR of the better project.
Introduction:
It is a method under capital budgeting which includes the calculation of net present value of the project in which a company is investing. The calculation is done by calculating the difference between the value of
It refers to the rate of return that is computed by the company to make a decision regarding the selection of a project for investment. This rate provides the basis for selection of projects with lower cost of capital and rejection of project with higher cost of capital.
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IRR: Mutually exclusive projects Nile Inc. wants to choose the better of two mutually exclusive projects that expand warehouse capacity. The projects' cash flows are shown in the following table: . The
cost of capital is 18%.
a. The internal rate of return (IRR) of project X is %. (Round to two decimal places.)
Data table
Is project X acceptable on the basis of IRR? (Select the best answer below.)
(Click on the icon here in order to copy the contents of the data table below
into a spreadsheet.)
Yes
O No
Project X
$500,000
Project Y
$310,000
The internal rate of return (IRR) of project Y is
%. (Round to two decimal places.)
Initial investment (CF)
Is project Y acceptable on the basis of IRR? (Select the best answer below.)
Year (t)
Cash inflows (CF,)
$120,000
$140,000
$105,000
$60,000
1
$100,000
O Yes
$160,000
O No
$170,000
$190,000
b. Which project is preferred? (Select the best answer below.)
$250,000
$30,000
OA. Project X
N 34 5
NPV and IRR analysis of projects Thomas Company is considering two mutually exclusive projects. The firm, which has a cost of capital of 10%, has estimated its
cash flows as shown in the following table:
a. Calculate the NPV of each project, and assess its acceptability.
b. Calculate the IRR for each project, and assess its acceptability.
a. The NPV of project A is $
(Round to the nearest cent.)
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Project X
Initial investment (CF) $500,000
Year (1)
1
2
3
4
5
Project Y
$330,000
Cash inflows (CFt)
$130,000
$120,000
$130,000
$200,000
$240,000
$150,000
$130,000
$75,000
$80,000
$60,000
Chapter 11 Solutions
FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
Ch. 11 - How are project classifications used in the...Ch. 11 - Prob. 2QCh. 11 - Why is the NFV of a relatively long-term project...Ch. 11 - Prob. 4QCh. 11 - If two mutually exclusive projects were being...Ch. 11 - Discuss the following statement: If a firm has...Ch. 11 - Prob. 7QCh. 11 - Project X is very risky and has an NPV of 3...Ch. 11 - Prob. 9QCh. 11 - A firm has a 100 million capital budget. It is...
Ch. 11 - NPV Project L costs 65,000, its expected cash...Ch. 11 - IRR Refer to problem 11-1. What is the projects...Ch. 11 - MIRR Refer to problem 11-1. What is the projects...Ch. 11 - PAYBACK PERIOD Refer to problem 11-1. What is the...Ch. 11 - Prob. 5PCh. 11 - NPV Your division is considering two projects with...Ch. 11 - CAPITAL BUDGETING CRITERIA A firm with a 14% WACC...Ch. 11 - CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS...Ch. 11 - Prob. 9PCh. 11 - CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE...Ch. 11 - CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE...Ch. 11 - Prob. 12PCh. 11 - MIRR A firm is considering two mutually exclusive...Ch. 11 - CHOOSING MANDATORY PROJECTS ON THE BASIS OF LEAST...Ch. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - CAPITAL BUDGETING CRITERIA A company has an 11%...Ch. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - CAPITAL BUDGETING CRITERIA Your division is...Ch. 11 - BASICS OF CAPITAL BUDGETING You recently went to...
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