Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Consider the following two projects: Cash flows Project A Project B C0�0 −$ 240 −$ 240 C1�1 100 123 C2�2 100 123 C3�3 100 123 C4�4 100 a. If the opportunity cost of capital is 8%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 8%. c. Which one would you choose if the cost of capital is 16%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h. If the opportunity cost of capital is 8%, what is the profitability index for each project? i. Is the project with the highest profitability index also the one with the highest NPV? j. Which measure should you use to choose between the projects?arrow_forwardThe future cash flows of a stand-alone capital project follow: If the cost of capital is 14%, what is the NPV of the project? (your financial calculator with cash flow journal helps here!) year 0 1 2 3 cash flow ($5000) $2500 $2500 $ 2500 $5804 $804 $6217 $1217arrow_forwardWhat is the NPV, payback period, and internal rate of return for Project A. With the initial cost of 1250000.000arrow_forward
- 7.3 q5-arrow_forwardCompute the NPV for Project X and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent. Time: 1 2 4 Cash flow: -150 -150 250 225 200arrow_forwardUse python to answer the following question: Question 5 A capital investment in an equipment with an upfront cost of $23,540 will provide you with the following annual cash flow stream (paid end of year): 1. $2,000 2. $1,456 3. $3,230 4. $6,850 5. $2,384 6. $1,234 7. $5,987 8. $4,190 The project will incur the following cost for maintenance and repair (paid end of year): Year 3: ($2,984) Year 4: ($1,837) Year 6-8: ($2,000) Calculate the NPV of the investment and comment on whether you should invest in the project. Why or why not? What is the IRR of the investment? The required rate of return is 3.5%.arrow_forward
- Hansabenarrow_forwardWhat is the NPV of the estimated cash flows for the following project using a Weighted Average Cost of Capital of 7.0%? Year 0 1 2 3 Cash Flow -140 50 70 90 Group of answer choices 47.54 38.63 59.94 70.00 41.34arrow_forwardExercise 24-10 (Algo) Net present value, unequal cash flows, and profitability Index LO P3 Following is information on two alternative investment projects being conside return from its investments. (PV of $1, FV of $1. PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. y Tiger Company. The company requires a 4% Initial investment Project X1 $ (130,000) Project X2 $ (220,000) Net cash flows in: Year 1 Year 2 Year 3 50,000 97,500 60,500 87,500 85,500 77,500 a. Compute each project's net present value. b. Compute each project's profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute each project's net present value. Note: Round your final answers to the nearest dollar. Net Cash Flowe Present Value of 1 at 4% Present Value of Net Cash…arrow_forward
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