CENGAGE MINDTAPAssignment: Chapter 09 Capital Budgeting TechniquesLocke Manufacturing Inc. is analyzing a project with the following projected cash flows:Year Cash Flow01234-$1,324,800300,000450,000546,000360,000This project exhibitsLocke's desired rate of return is 7.00%. Given the cash flows expected from the company's new project, compute the project's anticipated modifiedinternal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.)O 6.70%O 7.53%8.37%cash flows.O 9.21%Q Search this courseX CENGAGE MINDTAPAssignment: Chapter 09 Capital Budgeting TechniquesLocke Manufacturing Inc. is analyzing a project with the following projected cash flows:Year Cash Flow01234-$1,324,800300,000450,000546,000360,000This project exhibitsLocke's desired rate of return is 7.00%. Given the cash flows expected from the company's new project, compute the project's anticipated modifiedinternal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.)O 6.70%O 7.53%8.37%cash flows.O 9.21%Q Search this courseX

This project exhibits conventional cash flow.Conventional cash flow refers to a pattern of cash…

Answered: Assignment: Chapter 09 Capital…

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

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more. 3. Net present value method Aa Aa Consider the case of Underwood Manufacturing: Underwood Manufacturing is evaluating a proposed capital budgeting project that will require an initial investment of $120,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $37,600 Year 2 $50,500 Year 3 $45,000 Year 4 $41,900 Assume the desired rate of return on a project of this type is 10%. What is the net present value of this project? -$4,415.10 $18,344.79 -$7,244.50 $23,914.50 Suppose Underwood Manufacturing has enough capital to fund the project, and the project is not competing for funding with other projects. Should Underwood Manufacturing accept or reject this project? Accept the project Reject the project
9. Profitability index Estimating the cash flow generated by $1 invested in a project The profitability index (PI) is a capital budgeting tool that is defined as the present value of a project's cash inflows divided by the absolute value of its initial cash outflow. Consider this case: Purple Whale Foodstuffs Inc. is considering investing $2,750,000 in a project that is expected to generate the following net cash flows: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 $450,000 $500,000 $500,000
Cashflow patterns and the modified rate of return calculation Locke Manufacturing Inc. is analyzing a project with the following projected cash flows: Year Cash Flow 0 -$1,324,800 1 300,000 2 450,000 3 546,000 4 360,000 This project exhibits_________ (pick one- conventional or unconventional) cash flows. Locke’s desired rate of return is 5.00%. Given the cash flows expected from the company's new project, compute the project’s anticipated modified internal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.) choose the correct choice 6.09% 6.47% 6.85% 7.61% Locke’s managers are generally conservative, and select projects based solely on the project’s modified internal rate of return (MIRR). Should the company’s managers accept this independent project? choose the correct choice. Yes No You’ve just learned that…
TOPIC 6: CAPITAL BUDGETING TECHNIQUES ABC Manufacturing is considering two (2) mutually exclusive investments. The company wishes to use a CAPM-Type risk-adjusted discount rate (RADR) in its analysis. ABC's managers believe that the appropriate market rate of return is 10%, and they observe that the current risk-free rate of return is 5%. Cash flows associated with the two (2) projects are shown in the table below Project x $110,000 Project y $120,000 Year Net Cash Inflows (NCFt) 1 $40,000 $32,000 2 $40,000 $42,000 3 $40,000 $48,000 4 $40,000 $56,000 Answer the following questions: a. Use a risk-adjusted discount rate approach to calculate the net present value of each project, given that project X has a RADR factor (Risk Index) of 1.20 and project Y has an RADR factor (Risk Index) of 1.4. Please note that the RADR factors are similar to project betas. b. Discuss your findings in part a and recommend the preferred project.
which one is correct please confirm? QUESTION 19 Whipple Industries Inc. is in the process of determining its optimal capital budget for next year. The following investment projects are under consideration: Required Expected Rate Project Investment of Return A $2 million 20.0% B $3 million 15.0% C $1 million 13.5% D $4 million 13.0% E $1 million 12.5% F $3 million 12.0% G $5 million 11.5% The firm's marginal cost of capital schedule is as follows: Amount of Funds Raised Cost $0 - $6 million 12.0% $6 million - $12 million 12.5% $12 million - $18 million 13.5% Over $18 million 15.0% Determine Whipple's optimal capital budget (in dollars) for the coming year. a. $5 million b. $10 million c. $14 million d. $11 million
Basic scenario analysis Prime Paints is in the process of evaluating two mutually exclusive additions to its processing capacity. The firm's financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows associated with each project. These estimates are shown in the following table. Initial investment (CF) Outcome Pessimistic Most likely Optimistic Project A $12,100 Annual cash inflows (CF) $830 1,670 2,400 Project B $12,100 a. The range of annual cash inflows for project A is $ $1,530 1,670 1,730 a. Determine the range of annual cash inflows for each of the two projects. b. Assume that the firm's cost of capital is 9.5% and that both projects have 17-year lives. Construct a table showing the NPVs for each project for each of the possible outcomes. Include the range of NPVs for each project. (Round to the nearest dollar.) ...
Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Celestial Crane Cosmetics is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,225,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $400,000 Year 3 $450,000 Year 4 $425,000 Celestial Crane Cosmetics’s weighted average cost of capital is 8%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$934,674 -$534,674 -$634,674 -$1,121,609 Making the accept or reject decision Celestial Crane Cosmetics’s decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it…
10. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,225,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $425,000 Year 3 $400,000 Year 4 $500,000 Happy Dog Soap Company’s weighted average cost of capital is 8%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? A. -$1,828,361 B. -$1,403,361 C. -$2,194,033 D. -$5,053,361 Making the accept or reject decision Happy Dog Soap Company’s decision to accept or reject project Beta is independent of its decisions on other projects.…
Capital Budgeting Techniques Analyze the two independent projects, X and Y. Each project costs $10,000, and the firm’s required rate of return is 12%. The expected net cash flows are as follows: Outflows Inflows Projects Year 1 2 3 4 X -10,000 6,500 3,000 3,000 1,000 Y -10,000 3,500 3,500 3,500 5,500 Required: Calculate for each project: Payback Period IRR NPV PI Give your decision regarding acceptation and rejection of the project. Explain which criteria you based your decision upon and why?
A project has the following cash flows: Year Cash Flows 0 $ 128,200 12 1 2 3 4 49,400 63,800 51,600 28,100 The required return is 8.7 percent. What is the profitability index for this project? Multiple Choice 1.142 1.003 .803 1.038
Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Hungry Whale Electronics is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,000,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $425,000 Year 3 $500,000 Year 4 $475,000 Hungry Whale Electronics’s weighted average cost of capital is 7%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$1,152,891 -$1,814,575 -$1,577,891 -$4,577,891 Making the accept or reject decision Hungry Whale Electronics’s decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it…
Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Blue Hamster Manufacturing Inc. is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,225,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $475,000 Year 3 $500,000 Year 4 $500,000 Blue Hamster Manufacturing Inc.'s weighted average cost of capital is 8%, and project Beta has the same risk as the firm's average project. Based on the cash flows, what is project Beta's NPV? O O -$1,331,111 -$1,706,111 -$1,206,111 $1,518,889

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