Project A requires an upfront investment of $40 million and generates a constant $4 million every year, starting in year 1, in perpetuity. Project B requires an upfront investment of $80 million and generates a constant $6 million every year, starting in year 1, in perpetuity. What is the IRR of the cash flows of switching from project B to project A? a. 5.00 percent. b. 6.00 percent. c. 7.00 percent. d. 4.00 percent. e. 3.00 percent. cross out ✔ cross out cross out cross out cross out

Project A requires an upfront investment of $40 million and generates a constant $4 million every year, starting in year 1, in perpetuity. Project B requires an upfront investment of $80 million and generates a constant $6 million every year, starting in year 1, in perpetuity. What is the IRR of the cash flows of switching from project B to project A? a. 5.00 percent. b. 6.00 percent. c. 7.00 percent. d. 4.00 percent. e. 3.00 percent. cross out ✔ cross out cross out cross out cross out

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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Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$350,000 −$35,000 1 25,000 17,000 2 70,000 11,000 3 70,000 17,000 4 430,000 11,000 Assume you require a 15 percent return on your investment and a payback of 4 years. a. If you apply the discounted payback criterion, which investment will you choose? Why? b. If you apply the NPV criterion, which investment will you choose? Why? c. Based on your answers in (a) and (b), what you can say anything about the IRR of both projects? which project will you finally choose? Why?
A) Consider the following two mutually exclusive projects: Cash flow (A) -RM300,000 20,000 50,000 50,000 390,000 i) ii) Year 0 1 2 3 4 Cash flow (B) -RM40,000 19,000 12,000 18,000 10,500 If you apply the payback criterion, which investment will you choose if you set the maximum payback period of 3 years? If you apply the internal rate of return (IRR) criterion, which investment will you choose, if you require a 15% return?
Consider the following project (MARR = 12%): Year 0 1 2 A -90,000 32,000 32,000 3 16,000 4 16,000 5 6 16,000 16,000 a. If the cash flow pattern for each project repeats itself every 7 years thereafter, how much is the capitalized worth of each project? 7 32,000
3) Consider the following two projects: Net Cash Flow Each Period Initial Outlay 1 2 3 4 Project A $4,000,000 $2,003,000 $2,003,000 $2,003,000 $2,003,000 Project B $4,000,000 0 0 0 $11,000,000 Calculate the net present value of each of the above projects, assuming a 14 percent discount rate. What is the internal rate of return for each of the above projects? Compare and explain the conflicting rankings of the NPVs and IRRs obtained in parts a and b above. If 14 percent is the required rate of return, and these projects are independent, what decision should be made? If 14 percent is the required rate of return, and the projects are mutually exclusive, what decision should be made?
Consider the investment project with the following net cash flows: What would be the value of X if the project's IRR is 25%?
Carland, Incorporated, has a project available with the following cash flows. If the required return for the project is 7.9 percent, what is the project's NPV? Year Cash Flow 0 -$ 258,000 1 66, 300 2 90, 400 3 117,800 4 70,900 5-12,000 $35, 378.61 $18, 968.78 $27, 173.69 $15, 173.69 $13,276.98
H1. Account
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$425,000 44,000 62,000 79,000 540,000 -$40,000 20,400 13,300 18,600 15,400 2 4 The required return on these investments is 10 percent. a. What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) e. Based on your answers in (a) through (d), which project will you finally choose? a. Project A Project B b. Project A Project B c. Project A years years % Project B % d. Project A…
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Cannonier, In., has identified an investment project with the following cash flows: Year Cash Flow 1 $1,050 2 1,280 3 1,500 4 2,240 If the discount rate is 7 percent, what is the future value of these cash flows in Year 4?
is 22 percent? Future Value and Multiple Cash Flows Wells, Inc., has identified an investment project with the following cash flows. If the discount rate is 8 LO 1 3. percent, what is the future value of these cash flows in Year 4? What is the future value at an interest rate of 11 percent? At 24 percent? Year Cash Flow $ 865 1,040 1,290 1,385 1 2 3 4
A $670 investment has the following expected cash returns: Year Net Cash Flow $500 100 200 1 2 3 Compute the internal rate of return for this project. Round your answer to two decimal places. %

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