Project 1 requires an initial investment on $50,000 and has an internal rate of return (IRR) of 18%. A mutually exclusive alternative, Project 2, requires an investment of $70,000 and has an IRR of 23%. Which of the following statements is true concern- ing the rate of return on the incremental $20,000 investment? (a) It is less than 18%. (b) It is between 18 and 23%. (c) It is greater than 23%. (d) It cannot be determined from the data given.

Project 1 requires an initial investment on $50,000 and has an internal rate of return (IRR) of 18%. A mutually exclusive alternative, Project 2, requires an investment of $70,000 and has an IRR of 23%. Which of the following statements is true concern- ing the rate of return on the incremental $20,000 investment? (a) It is less than 18%. (b) It is between 18 and 23%. (c) It is greater than 23%. (d) It cannot be determined from the data given.

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 table below shows internal rate of return for three investment projects A, B and C and there differences. By capital investment, A С> В O b. B > C>A O C. A> B>C O d. C>A>B O e. C> B> A
A project has the following NPVs at the indicated costs of capital: +$100 at 8%; +$25 at 9%; -$50 at 10%; -$100 at 11%. Which of the following is TRUE regarding this project's IRR? OA. The IRR is below 9%. B. The IRR is about 11%. C. The IRR is between 10% and 11%. D. The IRR is closer to 9% than to 10%.
A project has an initial investment of $104. You have come up with the following estimates of the project's cash flows (there are no taxes): Revenues Costs Pessimistic Most Likely $17 12 Multiple Choice Suppose the cash flows are perpetuities and the cost of capital is 10 percent. Conduct a sensitivity analysis of the project's NPV to variations in revenues. (Answers appear in order: [Pessimistic, Most Likely, Optimistic].) -$104,-$34, $76 -$34, $36, $66 -$54, $66, $66 $24 10
The table below shows internal rate of retum for three investment projects A, B and C and there differences. By capital investment, A
You are considering two similar but mutually exclusive investments. You have calculated that: Project A has an NPV = $7,600 and IRR = 19.80% Project B has an NPV = $11,200 and IRR = 17.30% Which project would you select? Project A O Project B
You are evaluating five investment projects. You have already calculated the rate of return for each alternative investment and incremental rate of return for the two alternatives. In calculating the incremental rate of return, a lower-cost investment project is subtracted from the higher cost investment project. All rate of return figures are rounded to the nearest integers. If all investment alternatives are mutually exclusive and the MARR is 12%,which alternative should be chosen?(a) D(b)E(c) B(d) Do nothing
The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (1) Cash Flow (II) -$ -$ 0 55,000 1 25,000 2 25,000 3 25,000 a-1. If the required return is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project I Project II 18,900 10,150 10,150 10,150 a- If the company applies the profitability index decision rule, which project should the 2. firm accept? Project I O Project II Project I Project II 1. b- What is the NPV for both projects? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Project S requires an initial outlay at t= 0 of $16,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t= 0 of $27,500, and its expected cash flows would be $10,150 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Select the correct answer. Ca. Project S, because the NPVs > NPVL. Ob. Both Projects S and L, because both projects have IRR's > 0. Oc. Both Projects S and L, because both projects have NPV's > 0. Od. Project I because the NPVL > NPVs. Oe. Neither Project S nor L, because each project's NPV < 0.
The following information is available on two mutually exclusive projects. All numbers are in ‘000s. Project Year 0 Year 1 Year 2 Year 3 Year 4 A $700 $300 $300 $400 $400 B $700 $600 $300 $200 $100 a: If the minimum acceptable rate of return is 10%, which project should be selected using the Net Present Value (NPV) method? Which project should be selected if the Internal Rate of Return (IRR) method is used? b: At what cross‐over rate would the firm be indifferent between the two projects? What is the NPV for both projects at the crossover rate? c: How much should cash flow in year 3 for project B increase or decrease in order for NPV(B) to be equal to NPV(A)?
Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $37,000, and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend? Select the correct answer. a. Project L, because the NPVL > NPVS. b. Neither Project S nor L, because each project's NPV < 0. c. Both Projects S and L, because both projects have NPV's > 0. d. Both Projects S and L, because both projects have IRR's > 0. e. Project S, because the NPVS > NPVL.
Project X has the following cash flows: C0 = -1,250, C1 = 750, and C2 = 900. If the IRR of the project is 20 percent and if the cost of capital is 25 percent, you would need more information accept the project reject the project be indifferent
The internal rate of return (IRR) of a certain project is 11 % and the capital investment is $400,000. What is the present worth of this project at MARR = 15 % ? Note : This is not an assignment question and not a graded question... Thank you

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