OBIBA Company Ltd is considering which of two mutually exclusive projects it should undertake. OBIBA Company Ltd has a policy of discounting cash flows at 15% per annum. The company projects the free cash flows (in Cedis) of the two projects as follows: Project A (293) Project B (200) Year 45 120 2 125 40 3 140 40 4 110 15 5 30 80 Required: a. Calculate the Net Present Value (NPV), the Profitability Index (PI), and the Mrdified Internal Rate of Return (MIRR) of each project. b. Recommend with reasons, which project OBIBA Ltd should undertake.

OBIBA Company Ltd is considering which of two mutually exclusive projects it should undertake. OBIBA Company Ltd has a policy of discounting cash flows at 15% per annum. The company projects the free cash flows (in Cedis) of the two projects as follows: Project A (293) Project B (200) Year 45 120 2 125 40 3 140 40 4 110 15 5 30 80 Required: a. Calculate the Net Present Value (NPV), the Profitability Index (PI), and the Mrdified Internal Rate of Return (MIRR) of each project. b. Recommend with reasons, which project OBIBA Ltd should undertake.

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

gnment (II) Saved Fox Co. has identified an investment project with the following cash flows. Year Cash Flow $1,290 1,240 1,590 2. 3 1,950 a. If the discount rate is 9 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value at 17 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the present value at 23 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Present value at 9 percent b. Present value at 17 percent C. Present value at 23 percent re to search
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -$ 15,900 -$ 15,900 1 6,710 7,290 2 7,290 7,730 3 4,810 3,630 a. What is the IRR of Project X? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim b. What is the IRR of Project Y? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim c. What is the crossover rate for these two projects? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim a. IRR b. IRR % % c. Crossover rate %
18. Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for Tokyo Rubber Company. Assume the discount rate for both projects is 8 percent. Year 0 1 2 3 Dry Prepreg -$1,800,000 1,080,000 840,000 870,000 Solvent Prepreg -$715,000 380,000 627,000 396,000 a. Based on the payback period, which project should be taken? b. Based on the NPV, which project should be taken? c. Based on the IRR, which project should be taken? d. Based on this analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.
Question 2: Boisjoly Product Company is considering two mutually exclusive investment projects. The projects' annual expected cash flows are as follows: Estimated Net Cash Flows (million $) Year Project X Project Y 0 (405) (300) 1 134 (387) 2 134 (193) 134 (100) 4 134 600 5 134 600 6 134 850 7 0 (180) (note: numbers in brackets are costs) Compute IRR for each project. If you were told that the company's cost of capital (and also MARR) was 15% per year, which project the company should select?
Case 1: Assume you are evaluating two mutually exclusive projects,the cash flows of which appear below, and that your company uses a cost of capital of 8 percent to evaluate projects such as these. Time Project A Cash Flow Project B Cash Flow 0 -$650 -$700 1 100 300 2 250 -200 3 250 550 4 200 200 5 100 80 a. Calculate the payback of Project A. b. Calculate the discounted payback of Project A. c. Calculate the IRR of Project A. d. Using the NPV method and assuming a cost of capital of 8 percent, which of these projects should be accepted?
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$29,000 −$29000 1 14,400 4,300 2 12,300 9,800 3 9,200 15,200 4 5,100 16,800 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?
Mendez Company has identified an investment project with the following cash flows. Year 1234 Cash Flow $ 1,090 940 1,490 1,850 a. If the discount rate is 12 percent, what is the present value of these cash flows? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the present value at 15 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the present value at 21 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Present value at 12 percent b. Present value at 15 percent c. Present value at 21 percent
1. Consider the following two mutually exclusive projects, X and Y, and their cash flows information, Project X Y (a) (b) Year 0 ($2,600) ($3,100) Year 1 $1,000 $ 900 Cash Flows Year 2 $1,300 $1,500 Year 3 $ 800 $1,100 Year 4 $ 400 $ 800 Assume that the appropriate discount rate is 14%, calculate the Payback Period, the Modified IRR (McKinsey's approach) AND the Profitability Index for Project Y. State clearly the key piece of information that you need in order to make the correct investment recommendation on the two projects according to the Payback Period method. Given that Project X's IRR is 15.16%, which project should be chosen according to the IRR method? Precisely explain how you should construct the incremental project and its cash flows numerically. Precisely explain your final selection between these two mutually exclusive projects according to the incremental project (IRR) analysis.
Consider the following two mutually exclusive projects: Year Cash Flow Cash Flow B 0 -$318,844 -$27,476 1 27,700 9,057 2 56,000 10,536 3 55,000 11,849 4 399,000 13,814 The required return is 15 percent for both projects. Which one of the following statements related to these projects is correct? A. Because both the IRR and the PI imply accepting Project B, that project should be accepted.B. The profitability rule implies accepting Project A.C. The IRR decision rule should be used as the basis for selecting the project in this situation.D. Only NPV implies accepting Project A.E. NPV, IRR, and PI all imply accepting Project A.
Assume projects A and B are mutually exclusive. The respective cash flows for projects A and B are stated below: Project Year 0 Year 1 Year 2 Year 3 A $575,000 $373,000 $219,000 $185,000 $980,000 $395,000 $477,000 $339,000 If the discount rate, based on an investment of similar risk, is 10%, which of the projects should be accepted based on: (a) Payback period rule (b) NPV rule (c) IRR rule (d) Profitability Index criteria (10) (25) (15) (25) Note: Show your answers in tables and all calculations properly presented.
Two mutually exclusive investment projects have the following forecasted cash flows: Year A B 0 -$20,000 -$20,000 1 +11,000 0 2 +11,000 0 3 +11,000 0 4 +11,000 +55,000 Use Table II and Table IV to answer the questions. Compute the internal rate of return for each project. Round your answers to one decimal place.IRRA: % IRRB: % Compute the net present value for each project if the firm has a 10 percent cost of capital. Round your answers to the nearest dollar.NPVA: $ NPVB: $ Which project should be adopted? Why? should be chosen because it has the higher . It is assumed that the firm's reinvestment opportunities are more accurately represented by the .
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 15,456 5,225 8,223 13,013 8,705 0 1 234 -$ 276,363 26,400 51,000 57,000 402,000 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period b. What is the payback period for Project B? Payback period c. What is the discounted payback period for Project A? Discounted payback period

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