Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time: 0 1 2 3 4 5 Cash flow: −75 −75 0 100 75 50

Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time: 0 1 2 3 4 5 Cash flow: −75 −75 0 100 75 50

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section10.6: Profitability Index (pi)

Problem 2ST

See similar textbooks

Related questions

Q: Scott Enterprises is considering a project that has the following cash flow and cost of capital (r)…

A: NPV is the sum of future cashflows

Q: Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept…

A: Answer) Calculation of Discounted Payback period Year Annual cash flow Present value…

Q: Fernando Designs is considering a project that has the following cash flow and WACC data. What is…

A: The project's discounted payback can be calculated using discounted cash flows of the project.…

Q: Compute the MIRR statistic for Project X and note whether the firm should accept or reject the…

A: The modified internal rate of return (MIRR) method undertakes that positive cash flows are brought…

Q: A firm evaluates all of its projects by applying the IRR rule. If the required return is 14 percent,…

Q: Compute the PI statistic for Project X and note whether the firm should accept or reject the project…

A: The PI statistic is calculated as ratio of present value of cash inflows and initial cost

Q: A firm evaluates all of its projects by applying the IRR rule. The required return for the following…

A: Calculation of IRR:Using Excel Spreadsheet:

Q: A company is considering a project that has the following cash flow and WACC data. What is the…

A: The NPV is calculated as present value of cash inflows less initial cost

Q: Compute the PI statistic for Project X and note whether the firm should accept or reject the project…

A: PI refers to profitability index, it is used to evaluate the profitability of an investment or a…

Q: Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project…

A: The profitability index is one of the financial tools that determine the attractiveness of a project…

Q: Suppose your firm is considering investing in a project with the cash flows shown below, that the…

A: IRR(Internal rate of return) is the rate for cash flows with at least one negative cash flow that…

Q: A firm evaluates all of its projects by applying the NPV decision rule. A project under…

A: Net present value is the sum of value of cash flows discounted to present value at a given discount…

Q: Compute the Payback statistic for Project X and recommend whether the firm should accept or reject…

A: Payback period is The length of time required for an investment to generate cash flows sufficient to…

Q: Compute the Payback statistic for the following project and indicate whether the firm should accept…

A: As the cost of capital is provided here we will use the 'discounted pay back' approach.

Q: Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of…

A: NPV (Net Present Value) is one of the important techniques of capital budgeting decisions that aims…

Q: Reed Enterprises is considering a project that has the following cash flow and cost of capital (r)…

A: NPV is the net present value of future cashflows

Q: The cashflow of a project in Year 0, 1, 2, and 3 are -$200, $100, $100, $100. If opportunity cost of…

A: Profitability Index (PI) is a discounted capital budgeting technique that is used for…

Q: Suppose you are given the cash flows for a project with the following cash flows. The cost of…

A: The discounted payback period is the overall expected time required to recover the initial cost in…

Q: ompute the MIRR for Project Y and accept or reject the project with the cash flows shown as follows…

A: MIRR is modified internal rate of return in this reinvestment of the fund is considered that is why…

Q: The McNally Co. is considering an investment in a project that generates a profitability index of…

A: Profitability index =Present value of cash flow/initial investment

Q: Nichols Inc. is considering a project that has the following cash flow data. What is the project's…

A: Given:

Q: Harry's Inc. is considering a project that has the following cash flow and WACC data. What is the…

A: NPV is sum of present value of cash flows. Present value of cash flows = Cash flows/(1+discount…

Q: Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of…

A: Given information: Cost of capital is 12% Calculation of Net present value (NPV): Excel workings:

Q: Compute the discounted payback statistic for Project D and recommend whether the firm should accept…

A: The present value is the value of the sum received at time 0 or the current period. It is the value…

Q: Compute the IRR statistic for Project X and note whether the firm should accept or reject the…

A: IRR: The internal rate of return refers to the rate at which a project or an investment yields zero…

Q: Compute the MIRR statistic for the following project and indicate whether the firm should accept or…

A: A method of capital budgeting that helps to eliminate the issue which arises from the existence of…

Q: 3 Benihana has prepared the following estimates provided in the table below for the project under…

A: Capital budgeting is referred as the process of decision making which is used by companies to…

Q: Compute the payback period statistic for Project X and recommend whether the firm should accept or…

A: Payback Period: It is the period in which the project or investment returns its initial cost of…

Q: Compute the NPV statistic for Project Y. Explain whether or not the firm should accept or reject the…

A: Cost of capital = 0.10 or 10% Net present value (NPV) = ? Net present value is the difference…

Q: Compute the PI statistic for Project Z if the appropriate cost of capital is 6 percent. (Do not…

A: PI = Present value of future cashflows/ Initial Investment

Q: Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept…

A: Payback period refers to the time period for an investment or a project to recover its initial…

Q: You are considering an investment in two normal cash flow and mutually exclusive projects. Project…

A: Internal Rate of return is the rate at which Net present value of the project is zero. Crossover…

Q: The following are a project's cash flows. Its cost of capital is 10% . What is the project's…

A: Formulas:

Q: Suppose your fiem is considering investing in a project with the cash flows shown below, that the…

A: The NPV is calculated as present value of cash inflows minus initial cost. If the NPV of the project…

Q: Compute the NPV for Project X and accept or reject the project with the cash flows shown below if…

A: A method of capital budgeting that helps to evaluate the present worth of cash flow and a series of…

Q: Compute the IRR statistic for Project X and note whether the firm should accept or reject the…

Q: Compute the Internal Rate of Return for a project with the following cash flows: Year Cash Flow 0…

A: Internal rate of return of the stock is the rate at which the Net Present Value of the project…

Q: Anderson Systems is considering a project that has the following cash flow and WACC data. What is…

A: NPV is sum of present value of cash flow of the project. Present value of cash flow = Cash…

Q: Compute the discounted payback statistic for Project Y and recommend whether the firm should accept…

A: Given Information Cost of Capital = 12% Cash Flows from year 0 to Year 5 are as follows: 5,000 ; 500…

Q: Compute the Pl statistic for Project X and note whether the firm should accept or reject the project…

A: Profitability index: It is the ratio between the present value of the future cash flows and the…

Q: Hart Corp. is considering a project that has the following cash flow data. What is the project's…

A: Given: Year Cashflows ($) 0 -1000 1 425 2 425 3 425

Q: Yiu are asked to evaluate a capital project (in million 0 1. 2 3 4…

A: SINCE THE ABOVE HAS MORE THAN 3 SUB-PARTS, ANSWERS FOR 1ST 3 SUB PARTS WILL BE PROVIDED. FOR…

Q: Daisy's Creamery Inc. is considering one of two investment options. Option 1 is a $75,000 investment…

A: The present value of cash flows, $81,344 is computed by adding the product of the cash inflows,…

Q: Compute the Discounted Payback statistic for Project X and recommend whether the firm should accept…

A: Calculation of Discounted Payback:The discounted payback is 2.46 years.The project should be…

Q: A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the…

A: Internal rate of return is the rate of return where the net present value of the project is zero.

Q: compute the discounted payback statistic for Project X and recommend whether the firm should accept…

A: Discounted payback period shows that how long it will take to recoup an investment using present…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

Time:	0	1	2	3	4	5
Cash flow:	−75	−75	0	100	75	50

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Calculate the cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?
Calculate the project cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?
Compute the Pl statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 6 percent. Time: Cash flow: 0 -79 1 -79 2 0 3 104 4 79 V 5 54
Compute the NPV statistic for Project Y. Explain whether or not the firm should accept or reject the project with the cash flows shown in the chart below if the appropriate cost of capital is 10%. Year 0 = -8,000, year 1 = 3,350, Year 2 = 4,180, Year 3 = 1,520, Year 4 = $300
Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 8 percent. Time: 0 1 2 3 4 5 Cash flow: -82 -82 0 117 92 67
Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. Time: 0 1 2 3 4 5 Cash flow: −250 75 0 100 75 50 Multiple Choice −0.0977 percent, reject −9.77 percent, reject −24.41 percent, reject 24.41 percent, accept
Compute the payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 11 percent and the maximum allowable payback is one year. Time: 0 1 2 3 4 5 Cash flow: −100 75 100 300 75 200
The cash flows associated with an investment project are as follows: Project Y (200 000) Year 1 100 000 2 100 000 3 120 000 4 110 000 The discount rate is 8 percent. What's the discount payback period of the projects? (compile a spreadsheet) Calculate NPV, PI of a projects Calculate IRR of a projects Should the firm accept the project? a) b) c) d)
Compute the PI statistic for Project Q and advise the firm whether to accept of reject the project with the cash flows shown as follows if the appropriate cost of capital is 12% Time 0 1 2 3 4 5 Cash Flows -1000 250 180 420 300 100
Calculate the payback period, net present value, and internal rate of return for Project A. Assume a discount rate of 10%. Should the firm accept or reject Project A? Explain. If Project A and Project B are mutually exclusive, which is the better choice? Explain. What are “non-conventional” cash flows? What issues arise when evaluating projects with “non-conventional” cash flows? Project A Project B Year Cash Flow Year Cash Flow 0 -$100,000 0 -$1 1 $70,000 1 $0 2 $0 2 $0 3 $50,000 3 $10
Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent. Time: 0 1 2 3 4 5 Cash flow: -76 -76 0 111 86 61 rev: 11_25_2016_QC_CS-70617 Multiple Choice 1.49, accept 66.35, accept 9.00, reject 37.21, accept
Consider the following projects: Cash Flows ($) Project D E CO00 C101 -11,700 23,400 -21,700 37,975 Assume that the projects are mutually exclusive and that the opportunity cost of capital is 12%. a. Calculate the profitability index for each project. b-1. Calculate the profitability-index using the incremental cash flows. b-2. Which project should you choose?