Management of Blossom, Inc., is considering investing in three independent projects. The costs and the cash flows are given in thefollowing table. The appropriate cost of capital is 13.00 percent.Year01234Project 1-$250,00056,70076,50076,50090,000Project 2-$324,000The IRR of project 1 is157,925160,750100,800Project 3-$480,000214,500Blossom should accept project(s)214,500214,500Compute the project IRRs. (Round final answers to 2 decimal places, e.g. 15.25%.)214,500Identify the projects that should be accepted.%, project 2 is%, and project 3 is

The internal rate of return (IRR) is a financial metric used to evaluate the profitability of an…

Answered: Management of Blossom, Inc., is…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 4CMA

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Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated operating income, and net cash flow for each proposal are as follows: The companys capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the computed amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected. 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value table appearing in Exhibit 2 of this chapter. 5. Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4). 7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). 8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
Management of Blossom, Inc., is considering investing in three independent projects. The costs and the cash flows are given in the following table. The appropriate cost of capital is 15.27 percent. Year Project 1 Project 2 Project 3 0 -$250,000 -$319,200 -$470,000 1 65,900 153,525 202,800 2 81,800 159,750 202,800 3 90,400 107,900 202,800 4 101,100 202,800 Compute the project IRRs. (Round final answers to 2 decimal places, e.g. 15.25%.) The IRR of project 1 is Identify the projects that should be accepted. Blossom should accept project(s) %, project 2 is %, and project 3 is C
Cullumber Corp. management is evaluating two independent projects. The costs and expected cash flows are given in the following table. The cost of capital is 13.73 percent. Year 0 1 2 3 4 5 Project A - $287,839 109,300 109,300 109,300 109,300 109,300 Project B - $401,058 The NPV of project A is $ There is The IRR of Project A is a. Calculate the projects' NPV. (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) 138,190 Cullumber should choose 162,830 b. Calculate the projects' IRR. (Round answer to 2 decimal places, e.g. 15.25%.) Cullumber should choose 179,500 118,800 119,800 c. Which project should be chosen based on NPV? Based on IRR? Is there a conflict? and project B is $ % and Project B is will be accepted. ◆ based on NPV. based on IRR. between the NPV and IRR decisions. d. If you are the decision maker for the firm, which project or projects will be…
Cullumber Corp. management is evaluating two independent projects. The costs and expected cash flows are given in the following table. The cost of capital is 9.75 percent. Year 0 1 2 3 4 5 A - $339,547 129,300 129,300 129,300 129,300 129,300 B - $411,808 The NPV of project A is $ The IRR of Project A is 168,190 142,830 179,500 128,800 a. Calculate the projects' NPV. (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g. 1,525.) 119,800 and project B is $ b. Calculate the projects' IRR. (Round answer to 2 decimal places, e.g. 15.25%.) % and Project B is %.
You are given the following cash flows for a project. Assuming a cost of capital of 12.84 percent. determine the profitability index for this project. Year 0 1 2 3 4 5 O 14981 O 1.68/7 O1.7508 1.6245 1.5613 Cash Flow -$1,115.00 $554.00 $622.00 $648 00 $426.00 $216.00
First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $686,053 $516,654 $295,458 Annual net cash flows: Year 1 411,000 288,000 177,000 Year 2 382,000 259,000 122,000 Year 3 349,000 230,000 89,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each project. Use the…
Financial Manager of Timmy Company is considering two projects (project A and project H), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project H (in $) 0 -100 -100 1 10 70 2 60 50 3 80 20 Timmy Company’s cost of capital is 10 percent. Calculate payback, NPV, IRR, and MIRR for both projects. (Please have a step by step format to your answer with explainations. Thanks (=)
Financial Manager of Agusta Company is considering two projects (project A and project H), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project H (in $) 0 -100 -100 1 10 70 2 60 50 3 80 20 Agusta Company’s cost of capital is 10 percent. Calculate payback, NPV, IRR, and MIRR for both projects.
Better Health Inc. is evaluating two capital investments, each of which requires an up-front (time 0) expenditure of $1.5 million. The projects are expected to produce the following net cash inflows: Year Project A ($) Project B ($) 1 500,000 2,000,000 2 1,000,000 1,000,000 3 2,000,000 600,000 a. What is each project’s IRR? b. What is each project’s NPV if the opportunity cost of capital is 10 percent? 5 percent? 15 percent?
ital investment committee of Iguana Inc. is considering two capital investments. The estimated ig income and net cash flows from each investment are as follows: Year Robotic Assembler ng Income Robotic Assembler Net Cash Flow Warehouse Operating Income Warehouse Net Cash 35,000 $65,000 $21,000 $ 25,000 55,000 21,000 51,000 3 20,000 50,000 21,000 51,000 4 15,000 45,000 21,000 51,000 5 10,000 40,000 21,000 51,000 05,000 $255,000 $105,000 $255,000 Each project requires an investment of $150,000. Straight-line ation will be used, and no residual value is expected. The committee has selected a rate of 12% for s of the net present value analysis. Present Value of $1 at Compound Interest Year 12% 15% 20% 10.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.68: d: 1a. Compute the average rate of return for each investment. If required, round your answer to one place. Investment Committee Average Rate of Return Robotic Assembler % Warehouse %…

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