Consider a project with the following cash flows: Year 0 Year 1 -1000 1000 Year 2 1000 Year 3 -800 Project D The cash flows are negative in the last period because of decommissioning costs. i.) Write an equation that a good calculator or computer might be able to solve to calculate the IRR (but do not solve it). ii.) Two of your associates have gotten into a fist-fight over the IRR of the project in (i). One claims it is 29.519270%, way above the relevant cost of capital, so that the company should take the project. The other claims it is -34.793795%, way below the relevant cost of capital, so the company should reject the project. What happens when you plug these values into your equation from (i)? Is one of the associates right? What does this imply about the IRR rule?

Consider a project with the following cash flows: Year 0 Year 1 -1000 1000 Year 2 1000 Year 3 -800 Project D The cash flows are negative in the last period because of decommissioning costs. i.) Write an equation that a good calculator or computer might be able to solve to calculate the IRR (but do not solve it). ii.) Two of your associates have gotten into a fist-fight over the IRR of the project in (i). One claims it is 29.519270%, way above the relevant cost of capital, so that the company should take the project. The other claims it is -34.793795%, way below the relevant cost of capital, so the company should reject the project. What happens when you plug these values into your equation from (i)? Is one of the associates right? What does this imply about the IRR rule?

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 IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $3,000,000. The project's expected cash flows are: Year Year 1 Cash Flow $375,000 Year 2 -175,000 Year 3 400,000 Year 4 450,000 Cold Goose Metal Works Inc.'s WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 14.83% O-19.30% O 20.07% 13.96% If Cold Goose Metal Works Inc.'s managers select projects based on the MIRR criterion, they should this independent project.
In my accounting class I am learning to find accounting rate of return. To solve for this I subtracted net cash flow- the salvage value divided by the initial investment. Have I done something incorrect?
Use the following information for the Quick Study below. (Algo) [The following information applies to the questions displayed below.] Following is information on an investment in a manufacturing machine. The machine has zero salvage value. The company requires a 6% return from its investments. Initial investment Net cash flows: Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 QS 24-19 (Algo) Net present value with unequal cash flows LO P3 Compute this machine's net present value. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round all present value factors to 4 decimal places. Round present value amounts to the nearest dollar.) Totals Initial investment Net present value Net Cash Flow $ $ $ (240,000) 195,000 90,000 103,000 388,000 195,000 90,000 103,000 Present Value Factor Present Value of Net Cash Flows $ $ 0 0
A proposed project has a funding requirement of $1M, an NPV of $5M at r = 7% per year, an IRR of 14% per year, and very little risk. Yet it is rejected by the senior management team. What other factor could be wrong with the project proposal? A. Discount Factor too high B. Funding C. Salvage Value D. Time to Payback E. Cumulative Cash Flow not sufficient
solve this parctie problem
Please give answer for A and B
A firm wants to start a project. A team of financial analysts estimated the following cash flows year cash flow 0 -$100,000 1 55,000 2 43,000 3 45,000 Based on your calcification of the pay back period and if the cut off point is 2 years, the project should Group of answer choices Undertake the project Can not decide because we do not have enough information not undertake the project in the short run but undertake the project in the long run Not undertake the project
Overall, you should find conflicting recommendations based on the various criteria. Why is this occuring?
TLT Ltd is considering the purchase of a new machine for use in its production process. Management has developed three alternative proposals to help evaluate the machine purchase. Only one of these proposals can be implemented. Proposals A and B both have the same cost to set up, but the output from proposal A (as measured by future net cash flows) commences at a high rate and then declines over time, while Proposal B starts at a low rate and then increases over time. Proposal C involves buying two of the machines considered under proposal B. That is, proposal C is simply Proposal B scaled by a factor of two. Proposal C results in net cash flows which are similar in magnitude to proposal A's net cash flows in the first two years. The estimated net cash flows, internal rates of return and net present values at 9% and 11% for each proposal are given in the following table. Proposal A -$290,000 $100,000 $90,000 Proposal B -$290,000 $40,000 $50,000 Proposal C -$580,000 $80,000 $100,000 End…
A6)
Discuss the following statement. A manager believes that changes in NWC can be ignored from your free cash flow calculation if it will be recovered at the end of the project.
9

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