The Janet Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project B Initial investment -$50,000 -$50,000 Cashflow year 1 15,625 0 Cashflow year 2 15,625 0 Cashflow year 3 15,625 0 Cashflow year 4 15,625 0 Cashflow year 5 15,625 100,000 The required rate of return on these projects is 10 percent. What has caused the ranking conflict? Which project should be accepted? Why?

The Janet Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project B Initial investment -$50,000 -$50,000 Cashflow year 1 15,625 0 Cashflow year 2 15,625 0 Cashflow year 3 15,625 0 Cashflow year 4 15,625 0 Cashflow year 5 15,625 100,000 The required rate of return on these projects is 10 percent. What has caused the ranking conflict? Which project should be accepted? Why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 7P

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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.
The Janet Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project B Initial investment -$50,000 -$50,000 Cashflow year 1 15,625 0 Cashflow year 2 15,625 0 Cashflow year 3 15,625 0 Cashflow year 4 15,625 0 Cashflow year 5 15,625 100,000 The required rate of return on these projects is 10 percent. What is each project’s payback period? What is each project’s NPV? What is each project’s IRR? What has caused the ranking conflict? Which project should be accepted? Why?
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Two mutually exclusive investment projects have the following forecasted cash flows: Year A B 0 -$25,000 -$25,000 1 +10,000 0 2 +10,000 0 3 +10,000 0 4 +10,000 +50,000 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 9 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 .
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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 .
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Wang Food Market, Inc. has given you the following information on the two mutually exclusive projects under consideration: Annual Cash Flows 1 Year Project A 0 (R30 000) 1 10 000 2 10 000 3 10 000 4 10 000 5 10 000 Project B (60 000) 20 000 20 000 20 000 20 000 20 000 Wang requires a 14 percent rate of return on projects of this nature. (a) Compute the internal rate of return on both projects. (4) (b) Compute the profitability index of both projects. (4) (c) Compute the payback period of both projects. (4) (d) Which of the two projects, if either, should Wang accept? Why? (4)
The Janet Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project B Initial investment -$50,000 -$50,000 Cashflow year 1 15,625 0 Cashflow year 2 15,625 0 Cashflow year 3 15,625 0 Cashflow year 4 15,625 0 Cashflow 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?
Consider cash flows for the following investment projects (MARR = 15 %). Suppose that projects are mutually exclusive. Which project would you select based on AE criterion? Project A -3000 Project B -3500 ProjectC 4000 1400 1100 1500 2. 1650 1000 1500 3. 1300 1000 1800 1800 4 750 1000

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	Project A	Project B
Initial investment	-$50,000	-$50,000
Cashflow year 1	15,625	0
Cashflow year 2	15,625	0
Cashflow year 3	15,625	0
Cashflow year 4	15,625	0
Cashflow year 5	15,625	100,000