(1) (2) (3) (4) to his board colleagues. The operations director has already explained to the maring director that: The payback method is a good evaluation tool as it takes into account the liquidity of an individual project The Internal Rate of Return (IRR) calculation is irrelevant as the company does not need to borrow funds for its future projects The Net Present Value (NPV) method is too complicated as various discount rates have to be tried until a zero NPV can be found The Accounting Rate of Return (ARR) would be a good method after the audited accounts are completed and the company's profit margin can be ascertained The finance director has decided he should first inform the managing director that his board colleague has not accurately explained the alternatives, as DA. only statement (1) is true 3. only statement (2) is true only statement (3) is true one of the statements are true

(1) (2) (3) (4) to his board colleagues. The operations director has already explained to the maring director that: The payback method is a good evaluation tool as it takes into account the liquidity of an individual project The Internal Rate of Return (IRR) calculation is irrelevant as the company does not need to borrow funds for its future projects The Net Present Value (NPV) method is too complicated as various discount rates have to be tried until a zero NPV can be found The Accounting Rate of Return (ARR) would be a good method after the audited accounts are completed and the company's profit margin can be ascertained The finance director has decided he should first inform the managing director that his board colleague has not accurately explained the alternatives, as DA. only statement (1) is true 3. only statement (2) is true only statement (3) is true one of the statements are true

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

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c) Mr. Tim, the recently hired manager for this potential project is not convinced that using the IRR is sufficient to assess the project’s viability. Calculate the Modified Internal Rate of Return (MIRR) that should be used. d) Based off this MIRR, should the project be accepted? Explain why.
Which of the following statements is false? The NPV and IRR always provide the same accept/reject recommendation for a project with conventional cash flows. IRR provides information in a form that is useful to managers. IRR does not consider the scale of the project. O The IRR is only appropriate when you have unconventional cash flows. It is possible to compute multiple IRRS for a single project.
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Blue Hamster Manufacturing Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Sigma’s expected future cash flows. To answer this question, Blue Hamster’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$6,000,000 $2,400,000 $5,100,000…
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Beta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000 $1,800,000 $3,825,000 $1,575,000 Cumulative…
Devril plc is considering the investment in a project that has an initial cash outlay followed by a series of net cash inflows. The business applied the NPV and IRR methods to evaluate the proposal but, after the evaluation had been undertaken, it was found that the correct cost of capital figure was lower than that used in the evaluation. What will be the effect of correcting for this error on the NPV and IRR figures? a. NPV Increase IRR Decrease Ob. NPV Increase IRR Increase OC. NPV Decrease IRR Decrease d. NPV Decrease IRR No change Oe. NPV Increase IRR No Change Jump to... 1 Academic Integrity
A company that has several very different lines of business should always use only one “beta” to determine its discount rate on projects: true or false?
A Moving to another question will save this response. Question 6 What of the following is a drawback of using the payback method to evaluate capital projects? O Payback can result in value-decreasing decisions O Payback does not consider the time value of money O Payback does not consider risk O Payback does not consider all the cash flows of the project O All choices are correct A Moving to another question will save this response. MacBook Air 딤 F3 esc F2 - FS # $ & * 4 7 8 Q W R Y F C V elt option command D. S]
Net present value: is very similar in its methodology to the average accounting return. is the easiest method of evaluation for nonfinancial managers. cannot be applied when comparing mutually exclusive projects. is less useful than the internal rate of return when comparing different-sized projects. is the best method of analyzing mutually exclusive projects. OO O
I need solutions for questions d, e, f, g, h and i. Thanks d. Are this project’s cash flows likely to be positively or negatively correlated withreturns on Cory’s other projects and with the economy, and should this matter in youranalysis? Explain.e. Unrelated to the new product, Cory is analyzing two mutually exclusive machines thatwill upgrade its manufacturing plant. These machines are considered average-riskprojects, so management will evaluate them at the firm’s 10% WACC. Machine Xhas a life of 4 years, while Machine Y has a life of 2 years. The cost of each machineis $60,000; however, Machine X provides after-tax cash flows of $25,000 per year for4 years and Machine Y provides after-tax cash flows of $42,000 per year for 2 years. Themanufacturing plant is very successful, so the machines will be repurchased at the endof each machine’s useful life. In other words, the machines are “repeatable” projects.1. Using the replacement chain method, what is the NPV of the better machine?2.…
A. it is very A disadvantage of the average rate of return method of capital investment analysis is that complex to compute B. it does not include the entire amount of income earned over the life of a project C. it does not emphasize accounting income, which is often used by investors and creditors in evaluating management performance D. it does not directly consider the timing of the expected cash flows
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Beta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000 $1,800,000 $3,825,000 $1,575,000…
Please show all work on excel. You just got hired by McKinsey & Company as a financial consultant and they’re paying you an egregious amount of money. Accordingly, they have you working on the tough projects – like this one… Consider the following two mutually exclusive projects available to the firm. Free cash flows for Projects A and B are provided below. Assume the two projects have essentially the same level of riskiness, and your prior analysis indicates that the appropriate risk-adjusted hurdle rate (i.e., the WACC) is 7.45% for both projects. Perform the analysis below and make a recommendation as to which project to pursue. Year 0 1 2 3 4 5 6 Project A -$3,200 $700 $700 $700 $700 $700 $700 Project B -$600 $58 $58 $695 B. Compute the NPV for both projects using the crossover rate as the discount rate. What do you find? c. Compute the NPV for each project (using the WACC of 7.45% as the discount rate). Based on NPV, which project should be selected? Note:-…

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