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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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%.
1. Calculate the net present value for each project. 2. Calculate the simple rate of return for each product.3. Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why?
A project has projected cash flows of -$125,000, $35,000, $50,000, -$10,000 and $100,000 for years 0 to 4, respectively. Should this project be accepted based on the modified internal rate of return if both the finance rate and the reinvestment rate are 10.0 percent? Why or why not? No; The MIRR is 8.67 percent. No; The MIRR is 10.00 percent. Yes; The MIRR is 8.67 percent. Yes; The MIRR is 11.81 percent. No; The MIRR is 11.81 percent. 3
es Assume an investment has cash flows of -$105,000, $140,000, $200,000, and $485,000 for Years 0 to 3, respectively. What is the NPV if the required return is 13.5 percent? Should the project be accepted or rejected? Multiple Choice $501,656; reject $533,466; accept $505,307; reject
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
Q16) Salalah company management is considering three competing investment Projects A, B and C. Year Project A Project C 1000 300 Project B Initial Investment 1000 250 1000 1 275 275 250 300 300 300 300 3 250 275 4 250 250 275 275 Assume a discount Rate of 3% Required: Use the information below and help the management in choosing the most desirable Project using the following techniques: a) Payback period b) Discounted Payback Period c) Net Present value d) Profitability index.
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.
3. Lopez Industries has identified the following two mutually exclusive capital investment projects: Year Project A Project B 0 1 2 3 4 -16000 400 800 13000 -15500 12500 8000 800 14000 800 What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11%, what is the NPV for each of these projects? Which project should the firm accept if they apply the NPV rule?
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)?
Sunland Company is considering three capital expenditure projects. Relevant data for the projects are as follows. Project Investment 22A $243,500 271,400 23A 24A 283,000 Annual Life of Income Project $17,320 6 years 20,600 9 years 7 years 15,700 Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Sunland Company uses the straight-line method of depreciation.
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.

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