Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $100,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. The firm's required
a.$26,074.
b.$21,074.
c.$12,358.
d.$16,947.
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- Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial after-tax investment of $10,000 and are typical average-risk projects for the firm. Project A has an expected life of 2 years with after-tax cash inflows of $8,000 and $10,000 at the end of Years 1 and 2, respectively. Project B has an expected life of 4 years with after-tax cash inflows of $5,000 at the end of each of the next 4 years. The firm's WACC is 13%. a. If the projects cannot be repeated, which project should be selected if Crockett uses NPV as its criterion for project selection? Project A should be selected. b. Assume that the projects can be repeated and that there are no anticipated changes in the cash flows. Use the replacement chain analysis to determine the NPV of the project selected. Do not round intermediate calculations. Round your answer to the nearest cent. Since Project B 's extended NPV = $ it should be selected over Project -Select- with an NPV = $ c.…arrow_forwardJensen Shipping is considering a project that has an initial cost of $218,000. The project will produce aftertax cash flows of $49,000 a year forever. The firm's WACC is 15.8 percent and its tax rate is 34 percent. Equity has a flotation cost of 14.0 percent while the flotation cost for debt is 2.0 percent. What is the net present value of this project, including the flotation costs, if the firm's debt-equity ratio is .5? (Rounded) Multiple Choice $62,501 $53,088 $47,088 $67,904arrow_forwardOlinick Corporation is considering a project that would require an investment of $354,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (ignore income taxes.): Sales Variable expenses Contribution margin Fixed expenses: Salaries Rents Depreciation Total fixed expenses Net operating income Multiple Choice The scrap value of the project's assets at the end of the project would be $30,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (Round your answer to 1 decimal place.) 4.8 years $ 210,000 22,000 188,000 7.5 years 40,000 53,000 48,000 141,000 $ 47,000arrow_forward
- ABC, Inc. is considering a project that requires $21,000 in net working capital and $121,000 in fixed assets, which belong in a 30% CCA class. The fixed assets have a salvage value of 28,500 at the end of the 3 year project. The after-tax operating income of the project is $61,300 per year. The tax rate is 35% and the required rate of return is 16%. What is the NPV of this project? Multiple Choice $67,386 $48,933 $34,226 $21,887 $54,289arrow_forwardYokam Company is considering two alternative projects. Project 1 requires an initial investment of $470,000 and has a present value of all its cash flows of $2,350,000. Project 2 requires an initial investment of $5,000,000 and has a present value of all its cash flows of $6,000,000. (a) Compute the profitability index for each project. (b) Based on the profitability index, which project should the company select? Complete this question by entering your answers in the tabs below. Required A Required B Compute the profitability index for each project. Profitability Index Numerator: Denominator: Profitability Index = Profitability index Project 1 Project 2arrow_forwardYokam Company is considering two alternative projects. Project 1 requires an initial investment of $400,000 and has a present value of cash flows of $1,100,000. Project 2 requires an initial investment of $4,000,000 and has a present value of cash flows of $6,000,000. 1. Compute the profitability index for each project. 2. Based on the profitability index, which project should the company prefer? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the profitability index for each project. Project 1 Project 2 Choose Numerator: Profitability Index T 7 Choose Denominator: 4 of 5 180 # Next > G Oarrow_forward
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- Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The company requires a 12% return. Which project should the company select and why?arrow_forwardLakelord Company is considering two mutually exclusive projects, A and B. Project A costs $89977 and is expected to generate $64801 in year one and $66409 in year two. Project B costs $110404 and is expected to generate $58366 in year one, $62248 in year two, $68386 in year three, and $49405 in year four. The firm's required rate of return for these projects is 0.071. The net present value for Project A is Instruction: Type ONLY your numerical answer in the unit of dollars, NO $ sign, NO comma, and round to the nearest whole number. E.g., if your answer is $7,001.56, should type ONLY the number 7002, NEITHER 7,001.6, $7001.6, $7,001.6, NOR 7001.56. Otherwise, Blackboard will treat it as a wrong answer.arrow_forwardYou are evaluating two projects. You may accept only one of them. Project one will cost $379,000 initially and will pay $134,000 each year for the next 5 years. Project two will cost $454,000 initially, but will pay $101,000 for the next 10 years. The firm's cost of capital is 15%. Use the replacement chain approach to compute the NPV of each project. Which project has the highest NPV and by how much? Round your answers to the nearest dollar.arrow_forward
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