Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Given the following two mutually exclusive projects, always choose Project A (the project with a higher
Project | NPV | IRR |
A | $100 | 10.5% |
B | $150 | 9.5% |
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- need step by step answerarrow_forwardYou must choose one of these projects. Which one do you chose and why? Year 1 IRR NPV PI Project A Project B -50 80 60% 14 0.28 -120 180 50% 24 0.20arrow_forwardConsider the following two projects: Cash flows Project A Project B C0�0 −$ 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_forward
- Consider the following figure. If firm A were to use the average or composite WACC it would Rate of Return 13.0 (5) 11.0 10.0 90 Project L 70 70 Division L's WACC О Riskov Division H's WACC WACC Project H Composite WACC Firm A Risk Riskov O accept Project L and reject Project H O be making the right decisions on acceptance or rejection of both projects O accept both Project L and Project H O reject both Project L and Project H O accept Project H and reject Project Larrow_forwardCalculate the project's coefficient of variation. (Hint: Use the expected NPV.) Squared dev. Prob. NPV NPVI - E{NPV) Squared deviation times probability 0.24 S6,289.81 $5,829 SS 0.24 -$2,390.74 -S2,852 SS 0.32 -S1,233.33 -S1,694 $$ 0.20 -$ 400.00 -$861 SS 1.00 $ 461.11 Variance S Standard deviation $ 5.87 6.52 7.25 7.97 8.77arrow_forwardWhen faced with a set of independent projects, one should select (choose the best answer) O all projects with a positive NPV or an IRR greater than the hurdle rate. O all projects with an IRR greater than the hurdle rate O all projects with a positive NPV O all projects with a positive NPV or an IRR greater than the hurdle rate or a PI greater than one. O all projects with a positive NPV or a PI greater than the one. O all projects with a Pl greater than one. O all projects with an IRR greater than the hurdle rate or a Pl greater than one.arrow_forward
- Project A: IRR = 4%, Initial cost =100, NPV = 200 Project B: IRR = 14%, Initial cost =200, NPV = 230 Project C: IRR = 6%, Initial cost = 300, NPV = 300 Project D: IRR = 22%, Initial cost = 100, NPV = 260 If you can only choose 1 of the above projects above, which one should you choose? Project A Project B Project C Project D Not enough information to determine which project is preferredarrow_forwardTwo investments have the following pattern of expected returns: Investnent A Year 1 $5, 100 Year 2 $10,100 Year 3 Year 4 Year 4 (Sale) $121,000 STCF $12,100 $15,100 Investment B Year 1 $2,100 Year 2 $4,100 Year 3 $1,100 Year 4 Year 4 (Sale) $181,000 BTCF $5,100 Investment A requires an outlay of $111,000 and Investment B requires an outlay of $121,000. Required: a. What is the BTIRR on each investment? b. If the BTIRR were partitioned based on BTCF, and BTCF, what proportions of the BTIRR would be represented by each? c. Which investment would be preferable?arrow_forwardAnswer this question as it is pertaining to two MUTUALLY EXCLUSIVE projects on the following figure. At what discount rate will you be indifferent to these two projects under the NPV rule? Group of answer choices 0% 8% 11% 14%arrow_forward
- Are you agree with the phrase (sentence): "In the following case, person who prefer project A to project B is a risky"? explain why? ENPV 6 Project A 120 50 Project B 150 30arrow_forwardA Moving to another question will save this response. Quèstion 10 When evaluating mutually exclusive projects with different lives and different levels of risk, which of the following methods can be used? O IRR O None of the listed choices can be used in the evaluation. O PI O Payback O NPV O Each of the listed choices can be used in the evaluation. A Moving to another question will save this response. MacBook Air 20 F3 esc F2 F4 F5 # $ % 2 3 4 5 Q W E R T Sarrow_forwardProjects W and X are mutually exclusive projects with different lives. At the end of the life of the chosen project, the project will be repeated in perpetuity. Both projects have positive NPVs. Which project should be selected? Question 1Select one: a. Both projects b. Neither project c. The project with the highest NPV. d. The project with the highest EAA.arrow_forward
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