Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion (b) Assume that projects C and È are mutually exclusive. Using the IRR criterion, which Project would you select? Net Cash Flow A D -4,250 3,200 2,850 -4,250 2,850 2,900 1,050 500 -4,850 2,100 2,100 2,100 2,100 2,500 -835 -4,250 1,500 3,250 1 2 -835 3 800 -835 1,600 4 300 -835 1,200

Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion (b) Assume that projects C and È are mutually exclusive. Using the IRR criterion, which Project would you select? Net Cash Flow A D -4,250 3,200 2,850 -4,250 2,850 2,900 1,050 500 -4,850 2,100 2,100 2,100 2,100 2,500 -835 -4,250 1,500 3,250 1 2 -835 3 800 -835 1,600 4 300 -835 1,200

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion? (b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which Project would you select?. Net Cash Flow B D. E -4,850 2,100 2,100 2,500 4,250 3,200 2,850 800 300 4,250 4,250 2,850 2,900 1,050 500 -835 -835 -835 -835 1,500 3.250 1,600 1,200 2,100 2,100
Consider two investments with the following sequences of cash flows: (a) Compute the IRR for each investment.(b) At MARR = 10%, determine the acceptability of each project.(c) If A and B are mutually exclusive projects, which project would you selecton the basis of the rate of return on incremental investment?
7.16)Consider the investment projects given in Table P7.16. Assume that MARR = 12% in the following questions. (a) Compute i* for each investment. If the problem has more than one i*, identify all of them. (b) Compute IRR(true) for each project. (c) Compute the MIRR at MARR = 12%. (d) Determine the acceptability of each investment. TABLE P7.16 Net Cash Flow Project 1 Project 2 Project 3 -$1,000 -$1,000 -$1,000 1 2,500 1,960 1,400 2 -840 950 -200
onsider the following cash flows: C0=-$42 C1=+$38 C2=+$38 C3=+$38 C4=-$76 a. Which two of the following rates are the IRRs of this project?
which of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate. 3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of money
Consider the following cash flows, for four different projects: (given) (a) Calculate the conventional payback period for each project.(b) Determine whether it is meaningful to caJculate a payback period for Project D.(c) Assuming i = I 0% calculate the discounted-payback period for each project.
A project's IRR: A) All of these answers are correct. B is the average rate of return necessary to pay back the project's capital providers. C is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity. D will change with the cost of capital.
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows . a. A project’s NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV . b. The higher the WACC used to calculate the NPV, the lower the calculated NPV will be c. If a project’s NPV is greater than zero, then its IRR must be less than the WACC . d. If a project’s NPV is greater than zero, then its IRR must be less than zero. e. The NPVs of relatively risky projects should be found using relatively low WACCs
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. O a. If a project's IRR is positive, then its NPV must also be positive. O b. A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV), then discounting the TV to find the IRR. O c. A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost. O d. If a project's IRR is smaller than the WACC, then its NPV will be positive. O e. A project's regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV), then discounting the TV at the WACC.
Below is the schedule of cash flows for Investment PEK and Investment PVG. 1. Using the NPV, and IRR as criteria, which between Investment PEK and Investment PVG will you choose? Which is the best decision criterion? Justify your answer. Note that your capital outlay for Investment PEK is RMB 85,000.00 and your capital outlay for Investment PVG is also RMP 85,000.00. Assume that the interest rate is 10%. 2. How will your answer in (1) change if the interest rate increases by 5%? 3. How will your answer in (1) change if the interest rate decreases by 5%? 4. Comment on the impact of changing the interest rate on your NPV and IRR. Year-end Cash Flow Year PEK PVG 1 30,000.00 50,000.00 2 30,000.00 20,000.00 30,000.00 24,000.00 4 30,000.00 26,000.00 5 30,000.00 18,000.00
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. A project's NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV. b. The higher the WACC used to calculate the NPV, the lower the calculated NPV will be. c. If a project's NPV is greater than zero, then its IRR must be less than the WACC. d. If a project's NPV is greater than zero, then its IRR must be less than zero. e. The NPVs of relatively risky projects should be found using relatively low WACCs. Provide explanation for choice
how many of the following investment criteria always use all of a projects cash flows in their calculation? -NPV -Payback period -IRR -Profitability index