CAPITAL BUDGETING CRITERIA You must analyze two projects, X and Y. Eachproject costs $10,000, and the firm's WACC is 12%. The expected net cash flows areas follows:134Project XProject Y-$10,000-$10,000$6,500$3,500+$3,000$3,500$3,000$3,500$1,000$3,500Calculate each project's NPV, IRR, MIRR, payback, and discounted payback.b. Which project(s) should be accepted if they are independent?Which project(s) should be accepted if they are mutually exclusive?d. How might a change in the WACC produce a conflict between the NPV and IRRrankings of the two projects? Would there be a conflict if WACC were 5%? (Hint: Plotthe NPV profiles. The crossover rate is 6.21875%.)e. Why does the conflict exist?a.C.

NPV is the sum of present value of cash flows in the project WACC= 12% Year Cash Flows - Project…

Answered: CAPITAL BUDGETING CRITERIA You must…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

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CAPITAL BUDGETING CRITERIA You must analyze two projects, X and Y. Each project costs $10,000, and the firm's WACC is 12%. The expected net cash flows are as follows: 1 2 4 Project X Project Y -$10,000 -$10,000 $6,500 $3,500 $3,000 $3,500 $3,000 $3,500 $1,000 $3,500 Calculate each projecť's NPV, IRR, MIRR, payback, and discounted payback. b. Which project(s) should be accepted if they are independent? c. Which project(s) should be accepted if they are mutually exclusive? a. с. How might a change in the WACC produce a conflict between the NPV and IRR rankings of the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot the NPV profiles. The crossover rate is 6.21875%.) e. Why does the conflict exist?
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?
Modified internal h. Payback period; discounted payback CAPITAL BUDGETING CRITERIA You must analyze two projects, X and Y. Each project costs $10,000, and the firm's WACC is 12%. The expected cash flows are as follows. ST-2 0. 1 2. 4 -$10,000 -$10,000 $3,000 $3,500 $1,000 $3,500 $3,000 Project X Project Y $6,500 $3,500 $3,500 Calculate each project's NPV, IRR, MIRR, payback, and discounted payback. b. Which project(s) should be accepted if they are independent? Which project(s) should be accepted if they are mutually exclusive? d. How might a change in the WACC produce a conflict between the NPV amd IRR rankings of the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot the NPV profiles. The crossover rate is 6.21875%.) a. C. e. Why does the conflict exist?
Capital Budgeting Methods Project S has a cost of $11,000 and is expected to produce benefits (cash flows) of $3,400 per year for 5 years. Project L costs $23,000 and is expected to produce cash flows of $6,900 per year for 5 years. Calculate the two projects' NPVs, assuming a cost of capital of 14%. Do not round intermediate calculations. Round your answers to the nearest cent. Project S: $ Project L: $ Which project would be selected, assuming they are mutually exclusive? Based on the NPV values, Project S/Project L would be selected. Calculate the two projects' IRRs. Do not round intermediate calculations. Round your answers to two decimal places. Project S: % Project L: % Which project would be selected, assuming they are mutually exclusive? Based on the IRR values, Project S/Project L would be selected. Calculate the two projects' MIRRs, assuming a cost of capital of 14%. Do not round intermediate calculations. Round your answers to two decimal places. Project S: %…
Capital Budgeting Methods 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, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the nearest cent. Project S: $ Project L: $ Which project would be selected, assuming they are mutually exclusive? Based on the NPV values, Select- v would be selected. Calculate the two projects' IRRS. Do not round intermediate calculations. Round your answers to two decimal places. Project S: % Project L: % Which project would be selected, assuming they are mutually exclusive? Based on the IRR values, -Select- would be selected. Calculate the two projects' MIRRS, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to two decimal places. Project S: % Project L: % Which project would be…
Capital Budgeting Methods 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, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the nearest cent. Project S: $ Project L: $ Which project would be selected, assuming they are mutually exclusive? Based on the NPV values, would be selected. Calculate the two projects' IRRs. Do not round intermediate calculations. Round your answers to two decimal places. Project S: % Project L: % Which project would be selected, assuming they are mutually exclusive? Based on the IRR values, would be selected. Calculate the two projects' MIRRs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to two decimal places. Project S: % Project L: % Which project would be…
The Basics of Capital Budgeting Your division is considering two projects with the following cash flows (in millions): 0 1 2 3 Project A -$31 $7 $12 $22 Project B -$19 $13 $6 $5 What are the projects' NPVs assuming the WACC is 5%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. Project A:    $___   million Project B:    $___   million What are the projects' NPVs assuming the WACC is 10%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places. Project A:  $___   million Project B:  $___   million What are the projects' NPVs assuming the…
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A capital budgeting project is expected to have the following cash flows: Year Cash Flows 0 -$500,000 1 $300,000 2 $300,000 3 $200,000 4 $100,000 What is the project's net present value at a 12% required rate of return? Group of answer choices $276,475 $225,868 $212,923 $200,373
Capital Budgeting Decisions Accounting practice: Your company is considering undertaking a project to expand an existing product line. The required rate of return on the project is 8% and the maximum allowable payback period is 3 years. Time 0 1 2 3 4 5 6 Cash Flow $(10,000) $2,400 $4,800 $3,200 $3,200 $2,800 $2,400 Questions Evaluate the project using each of the following methods. For each method, should the project be accepted or rejected? Justify your answer based on the method used to evaluate the project’s cash flows. Payback period Internal Rate of Return (IRR) Simple Rate of Return Net Present Value
Capital Budgeting Decisions Your company is considering undertaking a project to expand an existing product line. The required rate of return on the project is 8% and the maximum allowable payback period is 3 years. Time 0 1 2 3 4 5 6 Cash Flow $(10,000) $2,400 $4,800 $3,200 $3,200 $2,800 $2,400 Questions Evaluate the project using each of the following methods. For each method, should the project be accepted or rejected? Justify your answer based on the method used to evaluate the project’s cash flows. Net Present Value

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