5.2 D'Arcy (Builders) Ltd is considering three possible investment projects: A, B and C. The expected pattern of cash flows for each project is:Project cash flowsAB£m£m£mInitial outlay(17)(20)(24)1 year's time111292 years' time3 years' time4 years' time797711613The business has a cost of capital of 10 per cent and the investment budget for next year is £25 million.Required:Which investment project(s) should the business undertake assuming each project is:(a) divisible(b) indivisible?

NPV or net present value is discounting the cash inflows to see the present value of the cash…

D'Arcy (Builders) Ltd is considering three possible investment projects: A, B and C. The expected pattern of cash flows for each projec Project cash flows A B £m £m £m Initial outlay (17) (20) (24) 1 year's time 2 years' time 3 years' time 4 years' time 11 12 7 9 7 7 11 6 6 13 The business has a cost of capital of 10 per cent and the investment budget for next year is £25 million. Required: Which investment project(s) should the business undertake assuming each project is: (a) divisible (b) indivisible?

D'Arcy (Builders) Ltd is considering three possible investment projects: A, B and C. The expected pattern of cash flows for each projec Project cash flows A B £m £m £m Initial outlay (17) (20) (24) 1 year's time 2 years' time 3 years' time 4 years' time 11 12 7 9 7 7 11 6 6 13 The business has a cost of capital of 10 per cent and the investment budget for next year is £25 million. Required: Which investment project(s) should the business undertake assuming each project is: (a) divisible (b) indivisible?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...

See similar textbooks

Similar questions

Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
4. A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year 0 1 2 3 Cash Flow -$ 41,000 20,000 23,000 14,000 a. If the required return is 14 percent, what is the IRR for this project? b. Should the firm accept the project?
3. You are evaluating Project A requiring an investment of $100m in year 0 after which it will generate cash flows of $50m at the end of years 10 to 20. The cost of capital is 8%. a. What is the project's NPV? b. What is its IRR?
Problem-11: The Corporation is considering a capital investment of Tk. 12,00,000 in a project, which is expected to yield the following cash flows: Year Cash inflow 1 2 3 4 to 6 7 150000 180000 160000 140000 190000 If the required rate of return is 12%, determine (i) NPV of the project and (ii) IRR of the project. Is the proposal an acceptable one?
5.2 D'Arcy (Builders) Ltd is considering three possible investment projects: A, B and C. The expected pattern of cash flows for each project is: Initial outlay 1 year's time 2 years' time 3 years' time 4 years' time Project cash flows B £m (20) 12 (a) divisible (b) indivisible? A £m (17) 11 5 7 6 7 7 6 C £m (24) 9 9 11 13 The business has a cost of capital of 10 per cent and the investment budget for next year is £25 million. Required: Which investment project(s) should the business undertake assuming each project is:
Consider a project with a net investment of $40,000 and the following net cash flows: Annual Cash Flow Year 1 $25,000 Year 2 $36,000 Year 3 $8,000 If the company's cost of capital is 5%, what would be the net present value of the project? a. $19,560 b. $19,800 c. $20,900 d. $23,373 Between equity and debt capital a. Debt is safer than equity b. No option is correct c. Both debt and equity are equally risky d. Equity is riskier than debt
5. It is estimated that an investment in a new process will cause the following cash flow in dollars. End Year 0 1 2 3 4 5 6 Cash inflow (S) 600 100 150 200 200 200 200 The firm wishes to earn at least 15% per annum on projects of this type. i. Calculate a. The NPV of the project b. The IRR of the project ii. Hence or otherwise comment on the course of action to be taken 6. Consider the payoff table below which shows decision alternatives (d₁; d2 and d3) that a company is faced with under three different states of nature (S₁; S₂ and S3). d/sj S₁ S2 S3 di 35 60 16 d₂ 21 85 62 d3 40 15 32 P(S₁) 0.25 0.65 0.1 Determine the appropriate decision that the company should make using the following approaches: i. Optimistic approach (maximax) ii. Conservative approach (maximin) iii. Minimax Regret Approach iv. Expected Monetary Value (EMV) approach. 7. Distinguish between the following terms commonly used in Business Mathematics: i. Cash Discounts and Trade Discounts ii. Prediction and…
3 NPV and IRR Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $18,250, and the project will yield cash inflows of $4,000 per year for 7 years. The firm has a cost of capital of 10%. a. Determine the net present value (NPV) for the project. b. Determine the internal rate of return (IRR) for the project. c. Would you recommend that the firm accept or reject the project? a. The NPV of the project is $ (Round to the nearest cent.) b. The IRR of the project is%. (Round to two decimal places.) c. Would you recommend that the firm accept the project? (Select the best answer below.) OYes O No
4. What is the internal rate of return for a project that has a net investment of $14,600 (Time 0 outflow) and a single net cash flow of $25,750 in 6 years? Use excel formula
Problem 1.a Given the following cash flows for Project M: C0 = -1,000, C1 = +200, C2 = +700, C3 = +698 calculate the IRR for the project. Problem 1.b Project X has the following cash flows: C0 = +2,000, C1 = -1,150, and C2 = -1,150. If the IRR of the project is 9.85% and if the cost of capital is 12%, would you accept or reject? Problem 1.c Story Company is investing in a giant crane. It is expected to cost $6.0 million in initial investment, and it is expected to generate an end-of-year after-tax cash flow of $3.0 million each year for three years. Calculate the NPV at 12%. Would you suggest company to invest? Problem 1.d The real interest rate is 3.0% and the inflation rate is 5.0%. What is the nominal interest rate? Problem 1.e Your firm expects to receive a cash flow in two years of $10,816 in nominal terms. If the real rate of interest is 2% and the inflation rate is 4%, what is the real cash flow for year 2?
3. A firm is considering investing in a project with the following cash flows: Years 1 2 3 4 5 Net Cash Flow (OMR) | 60,000 110,000 | 250,000 | 180,000 | 800,000 The initial investment is OMR 900,000 and required rate of return is 10%. Calculate discounted payback period.
The following are two projects a firm is considering: Project B Cash Flow Year 0 1 2 3 4 $2,939.01 Assuming that the relevant cost of capital for both projects is 11%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 20%, while its cost of capital is 11 percent. Given this information, determine the modified net present value (MNPV) for Project B. O $2.479.00 O $2.965.10 O$3.479.89 Project A Cash Flow O $4,084.05 ($10,000.00) ($11,000.00) $3,000.00 $5,000.00 $4,000.00 $4,000 00 $5,000.00 $4,000.00 $2,000.00 $2,000.00