EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Chapter 5, Problem 11QP
| Year | Deepwater Fishing | New Submarine Ride |
| 0 | - $850,000 | -$1,650,000 |
| 1 | 320,000 | 810,000 |
| 2 | 470,000 | 750,000 |
| 3 | 410,000 | 690,000 |
As a financial analyst for BRC, you are asked the following questions:
- a. If your decision rule is to accept the project with the greater IRR, which project should you choose?
- b. Because you are fully aware of the IRR rule’s scale problem, you calculate the incremental IRR for the cash flows. Based on your computation, which project should you choose?
- c. To be prudent, you compute the NPV for both projects. Which project should you choose? It is it consistent will the incremental IRR rule?
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NPV versus IRR Consider the following cash flows on two mutually exclusive projects for the Bahamas
Recreation Corporation (BRC). Both projects require an annual return of 14 percent.
Deepwater Fishing
-$725,000
270,000
420,000
380,000
Year
0
1
2
3
New Submarine Ride
-$1,450,000
820,000
650,000
540,000
As a financial analyst for BRC, you are asked the following questions:
a. If your decision rule is to accept the project with the greater IRR, which project should you choose?
b. Because you are fully aware of the IRR rule's scale problem, you calculate the incremental IRR for the cash
flows. Based on your computation, which project should you choose?
c. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with
the incremental IRR rule?
The following are the net cash flow estimates (in thousands of dollars) of the two (2) proposed projects, you are planning to invest in.
Expected Net Cash Flow
Year Restaurant & Bar Hardware
$M $M
0 (200) (200)
1 10 70
2 60…
can you please answer from question e and f and below because an expert already answered previous one thank you
Consider the following two mutually exclusive projects:
Year
Cash Flow(A)
Cash Flow(B)
0
–$
342,000
–$
50,500
1
53,000
24,800
2
73,000
22,800
3
73,000
20,300
4
448,000
15,400
Whichever project you choose, if any, you require a return of 14 percent on your investment.
a-1
What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
a-2
If you apply the payback criterion, which investment will you choose?
Project A
Project B
b-1
What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b-2
If you apply the discounted payback criterion, which…
Chapter 5 Solutions
EBK CORPORATE FINANCE
Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - International Investment Projects In March 2014,...Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Calculating Payback Period and NPV Maxwell...Ch. 5 - Calculating Payback An investment project provides...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Prob. 5QPCh. 5 - Calculating IRR Compute the internal rate of...Ch. 5 - Calculating Profitability Index Bill plans to open...Ch. 5 - Calculating Profitability Index Suppose the...Ch. 5 - Cash Flow Intuition A project has an initial cost...Ch. 5 - Prob. 10QPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Problems with Profitability Index The Coris...Ch. 5 - Prob. 13QPCh. 5 - Comparing Investment Criteria Wii Brothers, a game...Ch. 5 - Profitability Index versus NPV Hanmi Group, a...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Comparing Investment Criteria The treasurer of...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QPCh. 5 - NPV and Multiple IRRs You are evaluating a project...Ch. 5 - Payback and NPV An investment under consideration...Ch. 5 - Multiple IRRs This problem is useful for testing...Ch. 5 - NPV Valuation The Yurdone Corporation wants to set...Ch. 5 - Calculating IRR The Utah Mining Corporation is set...Ch. 5 - Prob. 25QPCh. 5 - Calculating IRR Consider two streams of cash...Ch. 5 - Calculating Incremental Cash Flows Darin Clay, the...Ch. 5 - Prob. 28QPCh. 5 - Prob. 1MCCh. 5 - Seth Bullock, the owner of Bullock Gold Mining, is...
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