questions attached No SPAM!! ONLY answer full STEP by STEP solution (without excel).The following net cash flows relate to two projects:NET CASH FLOWS (IN $ 1,000)YEAR134PROJECT A-60151515151515PROJECT B-80302018151210CasesThe discount rate (and the WACC) is 8%. Consider the following twocase I: The NPv of project A is < the NPV of project B.case II: The IRR of project B is higher than 8%, but lower than 9%.Explain step by step, Why & how : Both case I and case Il are false.

We are going to use Present Value of Money theory to answer this question.

Answered: The following net cash flows relate to…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.4IP

See similar textbooks

Similar questions

A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?
(1) Given that the benefit/cost ratio for project X is B/C(X) and that of higher ranked project Y is B/C(Y), then project Y will be preferred over X if the incremental benefit/cost ratio is greater than A. B/C(X) OB. B/C(Y) OC. One OD. Zero OE. MARR (2) Given that the internal rate of return for project X is IRR(X) and that of higher ranked project Y is IRR(Y), then project Y will be preferred over X if the incremental rate of return is greater than A. MARR OB. One OC. IRR(Y) OD. Zero OE. IRR(X)
You are a financial analyst for the ABC Company. The director of capital budgeting has asked you to analyse a proposed capital investment 'Projects A' which promises the cashflows as shown below. The project has a cost of capital of 6%. Calculate the project's DPBP, NPV and Pl. Based on all those parameters, would you recommend investing into this project and why? Use the table and fields below to complete the task. Time 1 Cash flow -€7,000 €5,500 €1,000 €2,000 Discounted cash flow Accumulated discounted cash flow NPV PI (show the calculation) DPBP (show the calculation)
I want you to provide me the Cash Flow diagram of the problem. Only cash flow diagram, the solution is already there. Thanks in advance! The annual estimated cash flow is $140,000. The salvage value will be 12% of the initial price after 5 years. The discount rate (r) is 18% Let us assume the initial price of the doughnut machine be X. PV of cash inflows=PV of cash outflows$140,000×PVAF4,18%+.12X×PVF5,18%=X$140,000×2.69006180465+.12X×0.43710921621=X$376,608.652651=X-0.05245310594$376,608.652651=0.94754689406XX=$397,456.479475 The maximum purchase price of the doughnut machine is $397,456.48.
A firm has a capital budget of $30,000 and is considering three possible independent projects. Project A has a present outlay of $12,000 and yields $4,231 per annum for 5 years. Project B has a present outlay of $10,000 and yields $4,184 per annum for 5 years. Project C has a present outlay of $17,000 and yields $5,802 per annum for 10 years. Funds which are not allocated to one of the projects can be placed in a bank deposit. Identify seven combinations of project investments and a bank deposits which exhaust the budget. Which of the above combinations should the firm choose when the bank deposit rate is (i) 15% or (ii) 20%? Explain your answer and show your work. Suppose there is no option to deposit in the bank, but the projects are "divisible" (e.g. you may have 25% of project A). Which combination should the firm choose? Explain your answer and show your work. Use 15% as the deposit rate (discount rate).
Q10. The equation that will yield the external rate of return (ERR) of the following project is: $25,000 $6,000 Investment Cost Annual Receipts Annual Expenses Market Value $7,000 Expected Life 5 years E% 8% A. 25,000 (F/P, i%, 5) = 7,000 + 6,000 (P/F, 8%, 5) B. 25,000 (F/P, i%, 5) = 7,000 6,000 (P/A, 8%, 5) C. 25,000 (F/P, i%, 5) = 7,000 + 6,000 (F/A, 8%, 5) D. 25,000 (P/F, i%, 5) = 7,000 - 6,000 (F/A, 8%, 5) E. None
Part 1Please calculate the payback period, IRR, MIRR, NPV, and PI for the following two mutuallyexclusive projects. The required rate of return is 15% and the target payback is 4 years.Explain which project is preferable under each of the four capital budgeting methodsmentioned above: Cash flows for two mutually exclusive projects Year Investment A Investment B 0 -$5,000,000 -5,000,000 1 $1,500,000 $1,250,000 2 $1,500,000 $1,250,000 3 $1,500,000 $1,250,000 4 $1,500,000 $1,250,000 5 $1,500,000 $1,250,000 6 $1,500,000 $1,250,000 7 $2,000,000 $1,250,000 8 0 $1,600,000 Part 2 Please study the following capital budgeting project and then provide explanations for thequestions outlined below:You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ),manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $2.1 million in…
recommend to SLB to increase capacity without any additional equipment or labour! 8. Greg Kopp, Acting Dean of Engineering, is considering competing proposals to establish joint programs with universities in Australia and Mexico. Students enrolled in each program would pay an additional fee to participate in these programs. Australia $105,000 $60,000 Mexico $185,000 $71,000 Investment Net Benefit 3 years Project Life 2 years With a hurdle rate (MARR) of 10%, calculate the net present value and external rate of return of the two investments. As Greg Kopp, which option would you recommend the Faculty of Engineering pursue? TOTAL
The Evanec Company's next expected dividend, D1, is $3.18; its growth rate is 6%; and its common stock now sells for $36. New stock (external equity) can be sold tonet $32.40 a share.What is Evanec's percentage flotation cost, F?
Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500 and has cash flows of $678, $652, $347, $111, $54, $16 in each of the next 6 years. Project Y also costs $1500, and generates cash flows of $738, $693, $405 for the next 3 years, respectively. WACC=11%. A) Draw the timelines for both projects: X and Y.
Select the correct answer from the terms provided to complete the sentences below. There are more answers than questions, therefore some of the items will remain unused. 1 8 Each project independently Only one 2 2m 9 2(m-1) Match each of the options above to the items below. The capital budgeting method allows 3 10 End of longest-lived project x=1 project(s) to be selected. 4 The total possible number of mutually exclusive bundles from m independent projects is 11 2m-1 LCM of all projects The capital budget limitation in a capital budgeting problem is applied to the initial investment of The linear programming solution of a capital budgeting problem requires that each decision variable have a value of 5 12 For Independent project analysis, the assumed reinvestment rate on positive net cash flows is at the MARR from the time realized until the x Is between 0 and 1 Each mutually exclusive bundle x = 0 or 1 7 More than one 8 3 2 12
Q 2. Techniques of Capital Budgeting refer to the criteria used to evaluate the project. These techniques can be broadly classified into two categories, one which is non-time adjusted and the other which is suitably adjusted for time. Do a comparative analysis of these two categories giving suitable examples to corroborate your claims.

SEE MORE QUESTIONS

Recommended textbooks for you

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics: Applications, Strategies an…

Economics

ISBN:

9781305506381

Author:

James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics: Applications, Strategies an…

Economics

ISBN:

9781305506381

Author:

James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS