Two mutually exclusive projects are under consideration. Project A ||$5,000 $2,750 $2,750 $2,750 $2,750 $2,750 Project B |-$9,000 $1,000 $3,000 $5,000 $7,000 $9,000 Year 1 2 4 a) Which project should be selected if the simple payback method is used to make the determination? b) Which project should be selected if NPV were used at 10% interest? c) Which project should be selected if incremental ROR were used at 20% interest? d) Explain any difference in choices.

Two mutually exclusive projects are under consideration. Project A ||$5,000 $2,750 $2,750 $2,750 $2,750 $2,750 Project B |-$9,000 $1,000 $3,000 $5,000 $7,000 $9,000 Year 1 2 4 a) Which project should be selected if the simple payback method is used to make the determination? b) Which project should be selected if NPV were used at 10% interest? c) Which project should be selected if incremental ROR were used at 20% interest? d) Explain any difference in choices.

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 following data relates to two mutually exclusive projects, Projects Y and Z, which have different lives. At the end of the chosen project, it will be replaced with an identical project and this will continue in perpetuity. Which project should be chosen? Project Y Z NPV $119 $134 EAA $59 $53 Question 2Answer a. Project Y, because its EAA of $59 is greater than that of Project Z. b. Project Z, because its NPV of $134 is greater than that of Project Y. c. Both projects, because both projects have positive NPVs. d. Both projects, because both projects have positive EAAs.
"Consider the following two mutually-exclusive alternatives: Project Alternatives n Project A1 Cash Flows Project A2 Cash Flows $14,000 -$17,000 +$21,000 1 + $4,000 2+ $4,000 +$12,000 If MARR=15% and assuming indefinite required service and repeatability, use the incremental NPV and IRR analyses in parts (a) and (b) of the problem, respectively, to choose the project in part (c). Please note that project alternatives A1 and A2 have different lives, namely three years for A1 and one year for A2. The alternatives should be compared over the same period, so project A2 will have to be repeated twice." (a) The Net Present Value of the incremental investment is: (b) The Internal Rate of Return of the incremental investment is: (c) We should choose project alternative: + Note: Please enter your answers to two decimal places. If using the interest factor method, apply the value of the factor as presented in the table or spreadsheet (with all four decimal places).
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)?
Consider the following two projects, X and Y: Period Project X Project Y 0 $(100,000) $(120,000) 1 $22,000 $0 2 $22,000 $0 3 $22,000 $0 4 $22,000 $0 5 $45,000 $175,000 Regarding the internal rate of return, which of the following statements is correct? The internal rate of return of Project Y is greater than the internal rate of return of Project X. The internal rate of return of Project X is equal to the internal rate of return of Project Y. O The internal rate of return of Project X is greater than the internal rate of return of Project Y. The internal rate of return of Projects X and Y cannot be determined based on this information.
"Consider the following two mutually-exclusive altematives: Project Alternatives n Project A1 Cash Flows Project A2 Cash Flows 0-514,000 1+$4,000 - $17,000 $21,000 2- 54,000 3-$12,000 If MARR=15% and assuming indefinite required service and repeatability, use the incremental NPV and IRR analyses in parts (a) and (b) of the problem, respectively, to choose the project in part (c). Please note that project alternatives A7 and A2 have different lives, namely three years for A1 and one year for A2. The alternatives should be compared over the same period, so project A2 will have to be repeated twice." axThe Net Present Value of the incremental investment is: YbrThe rternal Rate of Retun of the incremental investment is: (oWe shoulo choose project alternative: Note: Please enrer your onswvers to two decimal places. If using the interest factor method, apply the value of the factor os presented in the table or spreocsheet (with all four decimal places).
The following information is available on two mutually exclusive projects. Project Year 0 Year 1 Year 2 Year 3 Year 4 A -$700 $200 $300 $400 $500 B -$700 $600 $300 $200 $100 If the required rate of return is 10%, which project should be selected using the net present value (NPV) method? Group of answer choices A B
7. Consider the two mutually exclusive investment projects in the table, which have unequal service lives. 11 0 1 2 3 4 5 Project's Cash Flow A2 -$1,800 -$300 -$300 -$300 -$300 -$300 A1 -$900 -$400 -$400 -$400 $200 WAL -$300 + $500 a. What assumption(s) do you need in order to compare a set of mutually exclusive service projects with unequal service lives? b. With the assumption(s) defined in part (a) and using 10%, determine which project should be selected. c. If your analysis period (study period) is just three years, what should be the salvage value of project A2 at the end of year 3 to make the two alternatives economically indifferent?
The following information is available on two mutually exclusive projects. Project Year 0 Year 1 Year 2 Year 3 Year 4 A -$700 $200 $300 $400 $500 B -$700 $600 $300 $200 $100 If the required rate of return is 10%, which project should be selected using the internal rate of return (IRR) method? Group of answer choices A B
The net present value of four projects is given below: Project W: $24,000 Project X: $ 11,000 Project Y: $20,000 Project Z: $14,000 The four projects given above require the same amount of investment. How would you rank them using net present value (NPV) method? Group of answer choices X, Z, Y, W W, X, Y, Z W, Y, Z, XX, Y, Z, W
Consider the following two mutually exclusive projects. Time Project A Project B 0 -$300 -$405 1 -$387 $134 2 -$193 $134 3 $100 $134 4 $600 $134 5 $600 $134 6 $850 $150 7 $180 $284 What is each project’s payback, discounted payback, IRR, and NPV with a cost of capital of 12%? Which project should be selected?
You are evaluating two mutually exclusive projects. Period Project X Project Y 0 - $5,000 - $4,000 1 $ 3,250 $3,250 2 $3,250 $2,000 IRR 19.43 % 22.17% If your firm has a cost of capital of 10%, which project should you select? Group of answer choices Project X Project Y Insufficient information to provide an answer
Bruin, Inc. has identified the following mutually exclusive projects. 0 1 2 3 4 Cash Flows Project A ($37,500) $17,300 $16,200 $13,800 $7,600 Project B ($37,500) $5,700 $12,900 $16,300 $27,500 a. What is the IRR for each of these projects? b. Which project should be selected under the IRR rule? c. If the required return for each project were 11%, what is the NPV of each project. d. Which project should be selected under the NPV rule? e. How would you reconcile this conflict in project selection?

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