Consider the cash flows for the investment projects given in Table. Assume that the MARR - 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion? (b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which Project would you select?. Net Cash Flow B -4,250 2,850 2,900 1,050 500 D. -4,850 2,100 2,100 2,100 2,100 2,500 -4,250 3,200 2,850 -4,250 -835 1,500 3,250 1,600 1,200 -835 800 -835 300 -835

Consider the cash flows for the investment projects given in Table. Assume that the MARR - 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion? (b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which Project would you select?. Net Cash Flow B -4,250 2,850 2,900 1,050 500 D. -4,850 2,100 2,100 2,100 2,100 2,500 -4,250 3,200 2,850 -4,250 -835 1,500 3,250 1,600 1,200 -835 800 -835 300 -835

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion (b) Assume that projects C and È are mutually exclusive. Using the IRR criterion, which Project would you select? Net Cash Flow A В C D E -4,250 3,200 2,850 -4,250 1,500 3,250 1,600 1,200 -4,250 2,850 -4,850 2,100 2,100 2,100 2,100 2,500 1 -835 2,900 1,050 500 2 -835 3 800 -835 4 300 -835
7.16)Consider the investment projects given in Table P7.16. Assume that MARR = 12% in the following questions. (a) Compute i* for each investment. If the problem has more than one i*, identify all of them. (b) Compute IRR(true) for each project. (c) Compute the MIRR at MARR = 12%. (d) Determine the acceptability of each investment. TABLE P7.16 Net Cash Flow Project 1 Project 2 Project 3 -$1,000 -$1,000 -$1,000 1 2,500 1,960 1,400 2 -840 950 -200
Consider two investments with the following sequences of cash flows: (a) Compute the IRR for each investment.(b) At MARR = 15%. determine the accepta bility of each project.(c) If A and B are mutually exclusive projects. which project would you selecton the basis of the rate of return on incremental investment?
Project Y has following cash flows: C0 = -800, C1 = +6,000, and C2 = -6,000. Calculate the IRRs for the project: For what range of discount rates does the project have positive NPV (Plot a graph with NPV on the vertical axis and discount rate on the horizontal axis).
Consider the following cash flows, for four different projects: (given) (a) Calculate the conventional payback period for each project.(b) Determine whether it is meaningful to caJculate a payback period for Project D.(c) Assuming i = I 0% calculate the discounted-payback period for each project.
which of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate. 3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of money
Consider the cash flows for the following investment projects: (a) For Project A. find the value of X that makes the equivalent annual receiptsequal the equivalent annual disbursement at i = 13%.(b) Would you accept Project Bat i = 15% based on the AE criterion?
Consider two investments with the following sequences of cash flows: (a) Compute the i* for each investment.(b) Plot the present-worth curve for each project on the same chart and find the interest rate that makes the two projects equivalent.(c) If A and B are mutually exclusive investment projects, which project is more economically desirable at MARR of 15%?
Below is the schedule of cash flows for Investment PEK and Investment PVG. 1. Using the NPV, and IRR as criteria, which between Investment PEK and Investment PVG will you choose? Which is the best decision criterion? Justify your answer. Note that your capital outlay for Investment PEK is RMB 85,000.00 and your capital outlay for Investment PVG is also RMP 85,000.00. Assume that the interest rate is 10%. 2. How will your answer in (1) change if the interest rate increases by 5%? 3. How will your answer in (1) change if the interest rate decreases by 5%? 4. Comment on the impact of changing the interest rate on your NPV and IRR. Year-end Cash Flow Year PEK PVG 1 30,000.00 50,000.00 2 30,000.00 20,000.00 30,000.00 24,000.00 4 30,000.00 26,000.00 5 30,000.00 18,000.00
how many of the following investment criteria always use all of a projects cash flows in their calculation? -NPV -Payback period -IRR -Profitability index
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows . a. A project’s NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV . b. The higher the WACC used to calculate the NPV, the lower the calculated NPV will be c. If a project’s NPV is greater than zero, then its IRR must be less than the WACC . d. If a project’s NPV is greater than zero, then its IRR must be less than zero. e. The NPVs of relatively risky projects should be found using relatively low WACCs
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. A project's NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV. b. The higher the WACC used to calculate the NPV, the lower the calculated NPV will be. c. If a project's NPV is greater than zero, then its IRR must be less than the WACC. d. If a project's NPV is greater than zero, then its IRR must be less than zero. e. The NPVs of relatively risky projects should be found using relatively low WACCs. Provide explanation for choice