Monster Inc. is considering a project with the following cash flows: Co Ci_ C2 C3 C4 (RM25,000) RM10,000 RM12,000 RM5,000 RM8,000 The company is reluctant to consider projects with paybacks of more than three years. If projects pass the payback screen, they are considered further by means of the NPV and IRR methods. The firm's cost of capital is 9%. a) What is the project's payback period and discounted payback period? Should the project be considered further? b) What is the project's NPV? Does NPV indicate acceptance on a stand-alone basis? c) Calculate the project's IRR by using an iterative approach. Start by using the cost of capital and the NPV calculation from part a. Does IRR indicate acceptance on a stand-alone basis?

Monster Inc. is considering a project with the following cash flows: Co Ci_ C2 C3 C4 (RM25,000) RM10,000 RM12,000 RM5,000 RM8,000 The company is reluctant to consider projects with paybacks of more than three years. If projects pass the payback screen, they are considered further by means of the NPV and IRR methods. The firm's cost of capital is 9%. a) What is the project's payback period and discounted payback period? Should the project be considered further? b) What is the project's NPV? Does NPV indicate acceptance on a stand-alone basis? c) Calculate the project's IRR by using an iterative approach. Start by using the cost of capital and the NPV calculation from part a. Does IRR indicate acceptance on a stand-alone basis?

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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Kiley Electronics is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital (and even negative), in which case it will be rejected. r: 10.00% Year 0 1 2 3 Cash flows −$1,000 $550 $560 $570
Kyle is considering an investment with the following cash flows: Net Cash Flow Year ($250,000) 2,250,000 (2,550,000) 350,000 Which of the following statements is most correct? (Hint: Create a simple NPV profile.) 0 1 2 3 A. If you consider only the relevant range for a firm's cost of capital, this project would not be accepted. B. The project has two IRRS (14.204334 percent and 669.872604 percent) so the project should be accepted if the firm's cost of capital is between 14.204334 percent and 669.872604 percent. C. The project has two IRRS (14.204334 percent and 356.687931 percent) so the project should be accepted if the firm's cost of capital is less than 14.204334 percent or greater than 356.687931 percent. D. No IRR can be calculated for this project. E. This project has multiple MIRRs.
A company is considering investing in a project whose present value without flexibility is 100 million. The project pays no dividends, and the initial investment required is 102 million. The appropriate cost of capital for the project is 20%. The risk-free rate is 5%. Every period the project cash flows either go up by a factor "u", or reduces by a factor "d". Use u = 2.2255 and d% = %3D 0.4493. a) Calculate the NPV of the project without the flexibility. b) Suppose the total investment of 102 million (present value) may be disaggregated into 3 installments, as follows: 52 million in year 0, 21 million in year 1, and 33.075 million in year 2. In any year management has the option to "default" on its planned investment, at which point the project is terminated. What is the NPV for the project with this default option? c) What is the value of this default option?
Your firm has limited capital to invest and is therefore interested in comparing projects based on the profitability index (PI), as well as other measures. What is the PI of the project with the estimated cash flows below? The required rate of return is 16.7%. Round to 3 decimals. Year 0 cash flow = -720,000 Year 1 cash flow = -160,000 Year 2 cash flow = 540,000 Year 3 cash flow = 500,000 Year 4 cash flow = 430,000 Year 5 cash flow = 470,000
Your firm has limited capital to invest and is therefore interested in comparing projects based on the profitability index (PI), as well as other measures. What is the PI of the project with the estimated cash flows below? The required rate of return is 18.1%. Round to 3 decimals. Year 0 cash flow = 720,000 Year 1 cash flow = -130,000 Year 2 cash flow = 540,000 Year 3 cash flow = 490,000 Year 4 cash flow = 480,000 Year 5 cash flow = 550,000 Answer:
Computer Consultants Inc. is considering a project that has the following cash flow and WACC data. The WACC is 3.1%. The CFO$1,000, CF 1 = $450, CF2 = $450, and CF3 = $450. What is the project's MIRR?
Bluekettle Inc. is considering a project that has the following cash. What is the project's NPV(net present value) if you use a required rate of 14% ? If the NPV is negative, put the minus sign in front of your answer, such as -200.56. Note that a project's projected NPV can be negative, in which case it will be rejected. Year 0 1 2 3 Cash flows - $6,500 $1,600 $3,700 $7,500
A firm is considering two investment projects, Y and Z. These projects are NOT mutually exclusive. Assume the firm is not capital constrained. The initial costs and cashflows for these projects are: 0 1 2 3 Y -40,000 17,000 17,000 15,000 Z -28,000 12,000 12,000 20,000 Using a discount rate of 9% calculate the net present value for each project. What decision would you make based on your calculations? How would your decision change if the discount rate used for calculating the net present value is 15%? Calculate an approximate IRR for each project. Assume the hurdle rate is 9%. What decision would you make based on your calculations? Calculate the payback period for each project. The company looks to select investment projects paying back in 2 years. What decision would you make based on your calculations? Critically discuss Net Present Value (NPV), Internal Rate of Return (IRR) and payback period as criteria for investment appraisal.
Kiley Electronics is considering a project that has the following cash flow data. What is the project's IRR and should the project be accepted? The firm's cost of capital is 8%. Year 0 1 2 3 Cash flows -$1,100 $350 $470 $490 Question 14 options: 10.76% and accept the project 8.76% and accept the project 8.76% and reject the project 13.31% and reject the project 10.76% and reject the project 13.31% and accept the project
A firm is considering a project with the following cash flows: Time 0 = -$20,000, Years 1-5 = $4,500. Should the project be accepted if the cost of capital is 5%? A. No; The IRR of the project is 12.5%. B. Yes; The IRR of the project is 12.5%. C. Yes; The IRR of the project is 4.06%. D. No; The IRR of the project is 4.06%.
Sorenson Stores is considering a project that has the following cash flows:Year Cash Flow0 CF0 = ? 1 $2,0002 3,0003 3,0004 1,500The project has a payback of 2.5 years, and the firm’s cost of capital is 12%. What is the project’s NPV? Hint: Find out CF0 first.
JVA corporation is considering investing in a new project with the estimated cash flows shown below. Compute the NPV for the project and recommend whether the firm should accept or reject it. The required cost of capital is 20 percent. Time Cash Flow 0 1 -100 20 -$13.55, reject O$10.26, reject O $1.90, accept. O $11.34, reject 2 52 3 62

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