(a) Calculate the payback period of each project. ( ) (b) Compute the net present value of the two projects. ( (c) Which project should be accepted? Justify your answer.
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- Consider two mutually exclusive projects with the following expected cash flows : Cash Flows Year Project C Project D 0 -15,000 -21,000 1 6,000 6,000 2 12,000 16,000 3 8,000 14,000 Whichever project you choose, if any, you require a return of 12% on your investment. a. If you apply the discounted payback criterion, which project will you choose? Why? b. If you apply the NPV criterion, which project will you choose? Why? c. Based on your answers in (a) and (b), which project will you finally choose? Why ? (i.e clearly explain the strengths and the weaknesses of each method therefore the reason(s) for choosing the project based on the chosen method)1. The Bolster Company is considering two mutually exclusive projects: Year Cash Flow A Cash Flow B -$100,000 31,250 31,250 31,250 31,250 -$100,000 1 2 4 31,250 The required rate of return on these projects is 12%. 200,000 What is each project's payback period? What is each project's discounted payback period? What is each project's net present value? а. b. с.2. Investment Criteria. Consider the following information. Expected Net Cash Flows YearProject X 0($10,000) 16,500 23,500 33,000 41,000 Assume the discount rate is 10 percent. a. Calculate Project X’s discounted payback period. Should the project be accepted? b. Calculate the profitability index. Should the project be accepted? c. Calculate the accounting rate of return. Should the project be accepted?
- 17: Consider the following 2 mutually exclusive projects: Year Cash flow A Cash Flow B 0 -291000 -41600 1 37000 20000 2 55000 17600 3 55000 17200 4 366000 14000 Whichever project you choose, if any, you require a return of 11% on your investment. If you apply the payback criterion, which investment will you choose? Why? If you apply the discounted payback criterion, which investment will you choose? Why? If you apply the NPV criterion, which investment will you choose? Why? If you apply the IRR criterion, which investment will you choose? Why? If you apply the profitability index criterion, which investment will you choose? Why? Based on your answers in parts A through E, which project will you finally choose? Why?Suppose you are offered a project with the following payments: Year Cash Flows 0 $ 9,800 1 −5,300 2 −4,000 3 −3,100 4 −1,700 a. What is the IRR of this offer? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the appropriate discount rate is 15 percent, should you accept this offer? c. If the appropriate discount rate is 21 percent, should you accept this offer? d-1. What is the NPV of the offer if the appropriate discount rate is 15 percent? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d-2. What is the NPV of the offer if the appropriate discount rate is 21 percent? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Consider two mutually exclusive projects with the following expected cash flows and a required rate of return of 12% Cash Flows Year Project A Project B 0 -75,000 -100,000 1 60,000 60,000 2 30,000 50,000 3 30,000 60,000 (a) If you apply the discounted payback criterion, which investment will you choose? Why? (b) If you apply the NPV criterion, which investment will you choose? Why? (c) Based on your answers in (a) and (b), which project will you finally choose? Why ? (i.e clearly explain the strengths and the weaknesses of each method therefore the reason(s) for choosing the project based on the chosen method)
- Consider the following two mutually exclusive projects: YEAR CASH FLOW (A) CASH FLOW (B)0 -$300,000 -$39,0001 20,000 18,0002 70,000 12,0003 80,000 18,0004 400,000 19,000 Whichever project you choose, if any, you require a 15 percent return on your investment.i) If you apply the payback period (PBP) criterion, which investment will you choose? Why?ii) If you apply the net present value (NPV) criterion, which investment will you choose? Why?iii) If you apply the profitability index (PI) criterion, which investment will you choose? Why?iv) If you apply the internal rate of return (IRR) criterion, which investment will you choose?Why?v) Based on your answers in (i) through (iv), which project will you finally…A) Consider the following two mutually exclusive projects: Cash flow (A) -RM300,000 20,000 50,000 50,000 390,000 i) ii) Year 0 1 2 3 4 Cash flow (B) -RM40,000 19,000 12,000 18,000 10,500 If you apply the payback criterion, which investment will you choose if you set the maximum payback period of 3 years? If you apply the internal rate of return (IRR) criterion, which investment will you choose, if you require a 15% return?Consider the following two mutually exclusive projects:Year Cash Flow (X) Cash Flow (Y)0 -$365,000 -$38,0001 25,000 16,0002 65,000 12,0003 65,000 17,0004 425,000 15,000Whichever project you choose, if any, you require a 13 percent return on your investment. i. Which investment will you choose if you use the payback decision criteria? Justify your answer.ii. Which investment will you choose if you use the NPV decision criteria? Justify your answer.iii. Which project will you choose ultimately based on your answers above?
- 16. IRR/NPV. Consider the following project with an internal rate of return of 13.1%. (L08-2) Year 0 1 2 Cash Flow +$100 -60 -60 a. Should you accept or reject the project if the discount rate is 12%? b. What is project NPV?B. Problem: A company is considering two projects. The discount rate is 10 percent, and the projects' cash flows would be: Years 1 3 Project A -S700 S500 $300 S100 Project B -S700 s100 S300 S600 a. Calculate the projects' NPVS and IRRS. b. If the two projects are independent, which project(s) should be chosen? c. If the two projects are mutually exchusive, which project should be chosen?2. An investment has an installed cost of $412,670. The cash flows over the four-year life of the investment are projected to be $212,817, $153,408, $102,389, and $72,308. If the discount rate is zero, what is the NPV? If the discount rate is infinite, what is the NPV? At what discount rate is the NPV just equal to zero? Sketch the NPV profile for this investment based on these three points.