5.7. Projects A through E are being considered by an investor. They all are ten-year projects and the MARR is 10%. Projects A and B are mutually exclusive. Projects C and D are mutually exclusive and contingent on the acceptance of B. Project E is contingent on the acceptance of A. Project NPV ERR Capital investment $20,000 $15,000 $30,000 $22,000 $15,000 $5,000 8% $20,000 $15,000 $10,000 D E (a) List all of the possible mutually exclusive alternatives. (b) Which alternative is the best economic choice with unlimited capital? (c) Which alternative is the best economic choice with a capital constraint of $40,000?

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Exercise 12-14 (Algo) Comparison of Projects Using Net Present Value [LO12-2] Labeau Products, Limited, of Perth, Australia, has $15,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: Invest in Project X Invest in Project Y Investment required $ 15,000 $ 15,000 Annual cash inflows $ 5,000 Single cash inflow at the end of 6 years $ 36,000 Life of the project 6 years 6 years The company’s discount rate is 16%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project X. 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept?

Answer all the questions QUESTION 1 Questions a. After-tax cash flows for two mutually exclusive projects (with economic lives of four years each) are: Y Year Project X Project K(12,000) 5,000 01234 5,000 5,000 5,000 i. ii. iii. K(12,000) 0 0 0 25,000 The company's cost of capital is 10 percent. Compute the following: The internal rate of return for each project. The net present value for each project. Which project should be selected? Why? b. A firm is considering the purchase of an automatic machine for K6,200. The machine has an installation cost of K800 and zero salvage value at the end of its expected life of five years. Depreciation is by the straight-line method with the half-year convention. The machine is considered a five-year property. Expected cash savings before tax is K1,800 per year over the five years. The firm is in the 40 percent tax bracket. The firm has determined the cost of capital (or minimum required rate of return) as 10 percent after taxes. Should the firm…

Aa 27.

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Question 4 BAG Corporation is considering the following two projects; namely Project X and Project Y: Project X Cash Flow ($) Cash Flow ($) -80,000 Project Y Year 0 -100,000 10,000 20,000 60,000 40,000 30,000 60,000 Year 1 Year 2 Year 3 5,000 Year 4 60,000 The discount rate for Project X is 9%, and the discount rate for Project Y is 10%. a) 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? i. Calculate the profitability index for each project. b) ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the profitability index rule is considered? c) i. Calculate the net present value (NPV) for each project. ii. Suppose Project X and Project Y are mutually exclusive, which project(s) should be accepted when the NPV…

Problem 5.a: Consider the following set of projects at MARR = 30%. n 0 1 2 3 4 5 6 7 8 9 10 O A, B and E B and C A,B and D A, D and E A -$250 $60 $970 Determine what projects are simple investments? B,C and E B -$200 $90 $90 $60 $60 Net Cashflow C -$70 $20 $10 $5 -$50 $60 $50 $40 $30 $20 $10 D -$300 $270 $250 -$129 -$20 $120 $40 E -$90 -$100 -$50 $0 $150 $150 $100 $100

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