Cash Flow Cash Flow Year 0 (A) -$360,000 (B) -$56,000 1 47,000 28,000 2 67,000 24,000 3 67,000 21,500 4 442,000 16,600 Whichever project you choose, if any, you require a 15% return on your investment. -1. What is the payback period for each project? (Round the final answers to 2 decimal places.) Project A Payback Period 3.40 years Project B 2.19 years -2. If you apply the payback criterion, which investment will you choose?

Cash Flow Cash Flow Year 0 (A) -$360,000 (B) -$56,000 1 47,000 28,000 2 67,000 24,000 3 67,000 21,500 4 442,000 16,600 Whichever project you choose, if any, you require a 15% return on your investment. -1. What is the payback period for each project? (Round the final answers to 2 decimal places.) Project A Payback Period 3.40 years Project B 2.19 years -2. If you apply the payback criterion, which investment will you choose?

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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The following are the cash flows of two projects: Year Project A Project B -$200 -$200 01234 Project A B If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.) Profitability index 80 80 80 80 00 100 100 100 Is the project with the highest profitability index also the one with the highest NPV? Yes No
1. A project has an initial cost of 40,000. The future cash flows are 5,500, 15,200, -3,600, and 32,000 for year 1 to 4 respectively. How many IRRs will this project have? a. 3 b. 1 c. 4 d. 0
The following information regarding an investment project is available. Initial investment is £125,000 Scrap Value £10,000 at the end of 5 years Year Inflow 1 £60,000 2 £50,000 3 £10,000 4 £10,000 5 £50,000 A). What is the ARR using the Average Investment formula? Choose one from the following: A. 15% B. 17% C. 19% D. 21%
Suppose an investment has conventional cash flows with positive NPV. how would it impact your decision based on capital budgeting techniques mentioned below? 1.profitability index 2.internal rate of return 3.payback period
1. The Bolster Company is considering two mutually exclusive projects: Year Cash Flow A Cash Flow B -$100,000 31,250 31,250 31,250 31,250 -$100,000 1 2 4 31,250 The required rate of return on these projects is 12%. 200,000 What is each project's payback period? What is each project's discounted payback period? What is each project's net present value? а. b. с.
Year Cash Flow (A) Cash Flow (B) 0 −$ 417,000 −$ 36,000 1 48,000 19,600 2 58,000 14,100 3 75,000 14,600 4 532,000 11,400 The required return on these investments is 13 percent. What is the payback period for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. What is the NPV for each project? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. What is the IRR for each project? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. What is the profitability index for each project? Note: Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161. Based on your answers in (a) through (d), which project will you finally choose?
A project requires an investment of $1000 and generates a cash flow of $1000 in 1 year and another $1000 in 5 years. What is the IRR? A. 16.87% B. 25.13% C. 32.47% D. 38.16%
A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 -$ 152,000 1 64,000 2 75,000 3 59,000 a. What is the project's IRR? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the required return is 13 percent, should the firm accept the project? % a. Internal rate of return b. Project acceptance
A firm evaluates all of its projects by applying the IRR rule. Year 0 1 2 3 Cash Flow -$ 149,000 67,000 72,000 56,000 What is the project's IRR? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
A firm evaluates all of its projects by applying the IRR rule. Cash Flow Year 0 1 2 3 147,000 69,000 70,000 54,000 What is the project's IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return % If the required return is 16 percent, should the firm accept the project?
None
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$350,000 −$35,000 1 25,000 17,000 2 70,000 11,000 3 70,000 17,000 4 430,000 11,000 Assume you require a 15 percent return on your investment and a payback of 4 years. a. If you apply the discounted payback criterion, which investment will you choose? Why? b. If you apply the NPV criterion, which investment will you choose? Why? c. Based on your answers in (a) and (b), what you can say anything about the IRR of both projects? which project will you finally choose? Why?

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