BAG Corporation is considering the following two projects; namely Project X and Project Y: Project Y Cash Flow ($) Cash Flow ($) -100,000 30,000 Project X Year 0 -80,000 10,000 20,000 Year 1 Year 2 60,000 5,000 Year 3 60,000 Year 4 40,000 60,000 The discount rate for Project X is 9%, and the discount rate for Project Y is 10%. i. Calculate the payback period for each project. ii. Suppose Project X and Project Y are mutually exclusive (you can choose either one of Project X and Project Y, but cannot choose both), which project(s) should be accepted if BAG Corporation requires a payback period of 3 years? b) i. Calculate the profitability index for each project. ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the profitability index rule is considered? i. Calculate the net present value (NPV) for each project. c) ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the NPV rule is considered?

BAG Corporation is considering the following two projects; namely Project X and Project Y: Project Y Cash Flow ($) Cash Flow ($) -100,000 30,000 Project X Year 0 -80,000 10,000 20,000 Year 1 Year 2 60,000 5,000 Year 3 60,000 Year 4 40,000 60,000 The discount rate for Project X is 9%, and the discount rate for Project Y is 10%. i. Calculate the payback period for each project. ii. Suppose Project X and Project Y are mutually exclusive (you can choose either one of Project X and Project Y, but cannot choose both), which project(s) should be accepted if BAG Corporation requires a payback period of 3 years? b) i. Calculate the profitability index for each project. ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the profitability index rule is considered? i. Calculate the net present value (NPV) for each project. c) ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the NPV rule is considered?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Question 7 Chestnut Tree Farms has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$50,000 -$50,000 1 $35,000 $15,000 2 $8,000 $13,000 3 $7,000 $15,000 4 $6,000 $20,000 If forced to choose one of the two projects above, over what range of discount rates would you choose Project A? Group of answer choices 12.32 percent or less 12.32 percent or more 13.16 percent or less 13.98 percent or less 13.98 percent or more
Question 9 Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$50,000 -$25,000 1 $25,000 $10,000 2 $10,000 $10,000 3 $10,000 $10,000 4 $20,000 $5,000 Whichever project you choose, if any, you require a 10 percent return on your investment. If you apply the payback criterion, you will choose investment _____, if you apply the NPV criterion, you will choose investment _____; if you apply the IRR criterion, you will choose investment ____; if you choose the profitability index criterion, you will choose investment ____. Based on your first four answers, which project will you finally choose? Group of answer choices A; A; A; A; A A; B; A; A; A B; A; A; A; A A; B; B; B; B B; B; B; B; B
Projects A and B have cash flows of Year 0 1 2 A -$80 $50 $50 B -$100 $75 $75 What do IRR and NPV analyses say about the two projects? Which project is more desirable is the discount rate is 10% ?
Question 4 The Janet Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project BInitial investment -$50,000 -$50,000Cashflow year 1 15,625 0Cashflow year 2 15,625 0Cashflow year 3 15,625 0Cashflow year 4 15,625 0Cashflow year 5 15,625 100,000 The required rate of return on these projects is 10 percent.a. What is each project’s payback period?b. What is each project’s NPV ?c. What is each project’s IRR ?d. What has caused the ranking conflict?e. Which project should be accepted? Why?
Problem 7: NPV versus IRR. Consider the following two mutually exclusive projects: Year Cash flow Cash flow (X) (Y) O 1 2 3 -9500 5800 4000 4000 PART 7A: The NPV for X is $ Answer: 2083.77 -9500 3500 5000 6000 if the required rate of return is 10%.
4. Consider the investment projects given in the following table. n 0 1 2 Project 1 - $1,500 $700 $2,500 Net Cash Flow Project 2 - $5,000 $7,500 $600 Project 3 -$2,200 $1,600 $2,000 Assume that MARR=15% and a financing rate of 12%. a. Compute the IRR for each project. b. On the basis of the IRR criterion, if the three projects are mutually exclusive investments, which project should be selected?
Question The following economical indictors are referring to types of project (A and B). Answer the following points according to these given indictors in the tables. project A:r=8% project B: r=8% year cash flow (CF) year cash flow (CF) 0 -598 0 -384 1 110 1 105 2 170 2 105 3 210 3 95 4 320 4 118 A) If you are aware that( r%) percentages are various for different reasons to be (10% and 20%). So determine level of NPV during your analysis procedures for whole the mentioned cases of (% r) for each project? B) Which one of the mentioned project are more economically by using concept of IRR and take the range of (% r) between (9% to %25) for supporting your answers? C) Drawing out all the levels of various of the project for each cases of (r %) which given initially in point (A) above. D) Give clear justification about any of the above project more feasible?
Consider the two projects in the following table: Year 0123 14.65% O 13,70 % What is the crossover point for the two projects? 14.95% Expected Net Cash Flow 13.25% Project A -$22,000 $15,000 $15,000 $15,000 Project B -$20,800 $14,100 $14,100 $14,100
QUESTION 8 The INTERNAL RATE OF RETURN for the project shown above is: O 3.92% O 13.25 O 15.17% 9 21.22% O No IRR QUESTION 9
Consider the following two mutually exclusive projects: Second part of the Question Year Cash Flow(X) Cash Flow(Y) 0 –$ 19,900 –$ 19,900 1 8,825 10,050 2 9,050 7,775 3 8,775 8,675 d) At which range of discount rates would you choose Project X over Project Y? e) At which range of discount rates would you choose Project Y over Project X?
3) Consider the following two projects: Net Cash Flow Each Period Initial Outlay 1 2 3 4 Project A $4,000,000 $2,003,000 $2,003,000 $2,003,000 $2,003,000 Project B $4,000,000 0 0 0 $11,000,000 Calculate the net present value of each of the above projects, assuming a 14 percent discount rate. What is the internal rate of return for each of the above projects? Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above. If 14 percent is the required rate of return, and these projects are independent, what decision should be made? If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
ES Question 14 What is the IRR for the following project if its initial after-tax cost is $5,000,000 and is expected to provide an after-tax operating cash outflow of -$1,800,000 in year 1, followed by inflows of $2,900,000 in year 2, $0 in year 3, $2,700,000 in year 4, and $2,300,000 in year 5? O 5.83% O 31.53% O None of the four possible given answer is correct 11.44% O 9.67%

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS