o thi apital 1 O CRITERIA % Y upial gl RN A g R o » nchuing depreciaion, e a5 o o 3 4 200 00 g0 s $5600 g5ann $5600 $5600 85600 4 discounte payback for each projct €, which onets wouid you recommend? 5, Which wonld you rocommend et s ik o . Why s thers o confic between NPV and 1y ing pat Lol this year's capital budget. After-tax cash flows, including depreciation,wteTING CRITERIA A firm with a 14% WACC is evaluating two projects forare as follows:2+$2,000$5,600Calculate NPV, IRR, MIRR, payback, and discounted payback for each projectb. Assuming the projects are independent, which one(s) would you recommend?3Project AProject B-$6,000-$18,000$2,000$5,600$2,000$5,600$2,000$5,600$2,000$5,600a.If the projects are mutually exclusive, which would you recommend?C.d. Notice that the projects have the same cash flow timing pattern. Why is there a conietbetween NPV and IRR?11.8CAPITA I DI -

TING CRITERIA A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 2. 3 4. Project A Project B -$6,000 -$18,000 $2,000 $5,600 $2,000 $5,600 a. Calculate NPV, IRR, MIRR, payback, and discounted payback for each project b. Assuming the projects are independent, which one(s) would you recommend? If the projects are mutually exclusive, which would you recommend? d. Notice that the projects have the same cash flow timing pattern. Why is there a confmict $2,000 $5,600 $2,000 $5,600 $2,000 $5,600 C. between NP and IRR?

TING CRITERIA A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 2. 3 4. Project A Project B -$6,000 -$18,000 $2,000 $5,600 $2,000 $5,600 a. Calculate NPV, IRR, MIRR, payback, and discounted payback for each project b. Assuming the projects are independent, which one(s) would you recommend? If the projects are mutually exclusive, which would you recommend? d. Notice that the projects have the same cash flow timing pattern. Why is there a confmict $2,000 $5,600 $2,000 $5,600 $2,000 $5,600 C. between NP and IRR?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 2P

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Consider the following two mutually exclusive projects: Year Cash Flow(A) -$ 63,000 39,000 33,000 22,500 14,600 Cash Flow(B) -$ 63,000 25,700 29,700 35,000 24,700 4 1-What is the IRR for each project? Project A Project B % % 2.IF you apply the IRR decision rule, which project should ti 3.Assume the required return is 14 percent. What is the NP Project A Project B 0123
B Assume the following information for a capital budgeting proposal with a five-year time horizon: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket costs This proposal's simple rate of return is closest to: Multiple Choice O 27%. 16%. 19% 11% $ 485,000 $ 300,000 $ 130,000 $ 50,000 $ 40,000
time value of money practice example: Please show calcualtions/steps (excell or other format): a) Calculate PB, DPB, NPV, IRR and PI for the following project: - discount rate of 12% - initial investment = 750,000 - ncf yr 1 = 150,000 - ncf yr 2 = 300,000 - ncf yr 3 = 400,000 - ncf yr 4 = 250,000 - ncf yr 5 = 100,000
Please calculate the payback period, IRR, MIRR, NPV, and PI for the following two mutually exclusive projects. The required rate of return is 15% and the target payback is 4 years. Explain which project is preferable under each of the four capital budgeting methods mentioned above: Table 1 Cash flows for two mutually exclusive projects Year Investment A Investment B 0 -$5,000,000 -5,000,000 1 $1,500,000 $1,250,000 2 $1,500,000 $1,250,000 3 $1,500,000 $1,250,000 4 $1,500,000 $1,250,000 5 $1,500,000 $1,250,000 6 $1,500,000 $1,250,000 7 $2,000,000 $1,250,000 8 0 $1,600,000 Part 2 Please study the following capital budgeting project and then provide explanations for the questions outlined below: You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $2.1 million in anticipation of using it as a toxic waste dump site but has recently hired…
Consider the following two mutually exclusive projects: Cash Flow Cash Flow Year 0 (A) -$360,000 (B) -$56,000 1 47,000 28,000 2 67,000 24,000 3 67,000 21,500 4 442,000 16,600 Whichever project you choose, if any, you require a 15% return on your investment. a-1. What is the payback period for each project? (Round the final answers to 2 decimal places.) Project A Project B Payback Period 3.40 years 2.19 years a-2. If you apply the payback criterion, which investment will you choose? O Project A Project B b-1. What is the discounted payback period for each project? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)
Modified internal h. Payback period; discounted payback CAPITAL BUDGETING CRITERIA You must analyze two projects, X and Y. Each project costs $10,000, and the firm's WACC is 12%. The expected cash flows are as follows. ST-2 0. 1 2. 4 -$10,000 -$10,000 $3,000 $3,500 $1,000 $3,500 $3,000 Project X Project Y $6,500 $3,500 $3,500 Calculate each project's NPV, IRR, MIRR, payback, and discounted payback. b. Which project(s) should be accepted if they are independent? Which project(s) should be accepted if they are mutually exclusive? d. How might a change in the WACC produce a conflict between the NPV amd IRR rankings of the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot the NPV profiles. The crossover rate is 6.21875%.) a. C. e. Why does the conflict exist?
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For a project with an initial investment of $30,000 and cash inflows of $12,000 a year for three years, calculate NPV given a required return (I/Y) of 3.65%. Select one: a. $1,265 b. $3,524 c. $4,839 d. $730
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Case 1: Assume you are evaluating two mutually exclusive projects,the cash flows of which appear below, and that your company uses a cost of capital of 8 percent to evaluate projects such as these. Time Project A Cash Flow Project B Cash Flow 0 -$650 -$700 1 100 300 2 250 -200 3 250 550 4 200 200 5 100 80 a. Calculate the payback of Project A. b. Calculate the discounted payback of Project A. c. Calculate the IRR of Project A. d. Using the NPV method and assuming a cost of capital of 8 percent, which of these projects should be accepted?
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Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you hav do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and characteristics similar to the firm's average project. Bellinger's WACC is 8%. 0 Project A -1,500 Project B -1,500 1 700 300 2 370 310 3 215 395 4 310 755 What is Project Delta's IRR? Do not round intermediate calculations. Round your answer to two decimal places. *%