uppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1) The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the way to go when it is compared with IRR? In other words what are the shortcomings of IRR method?

uppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1) The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the way to go when it is compared with IRR? In other words what are the shortcomings of IRR method?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1CMA

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Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR / CASH FLOW (A) /CASH FLOW (B)0 -$17,000 -$17,0001 8,000 2,0002 7,000 5,0003 5,000 9,0004 3,000 9,500 a. Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case. b. Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings. c. Calculate the Internal Rate of Returns (IRR) for both projects (use excel). Which…
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR / CASH FLOW (A) /CASH FLOW (B)0 -$17,000 -$17,0001 8,000 2,0002 7,000 5,0003 5,000 9,0004 3,000 9,500 a)The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the way to go when it is compared with IRR? In other words what are the shortcomings of IRR method? b)Calculate the Profitability Index for each proposal. Which project should you accept? Can this measure help to solve the dilemma?…
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 Calculate the Internal Rate of Returns (IRR) for both projects (use excel). Which project should you accept? Evaluate the IRR values of these two projects.
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1) Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings.
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1. Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case. 2. Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings. 3. The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the…
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1) Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case.
QUESTION 1 Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. CASH FLOW (A) -$17,000 8,000 7,000 5,000 3,000 CASH FLOW (B) -$17,000 2,000 5,000 9,000 9,500 YEAR 3 4 1 Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case.
A*) You are hired as financial manager in Abis Investment Co., you made cash flow projection for two different projects. You are asked to estimate the feasibility of the projects by using the following investment criteria: NPV, IRR, MIRR and BCR. They are mutually exclusive. Show all your calculation. The details of that projects are given below: Year 0 1 2 3 4 5 Project A -1,000 1,200 4600 1,800 -8,000 5,000 Project B -2,000 1,000 3600 800 8,000 500 Discount rates 12% 13% 12% 14% 15% 11%
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Consider the cash flow of the two projects depicted in Table 3. If WiseGuy Inc. uses payback period rule to choose projects, which of the projects (Project A or Project B) will rank highest? TABLE 3 Project A Project B Time 0. -11,000. -10,000 Time 1. 3,000. 4,000 Time 2. 8,000. 3,000 Time 3. 3,000. 10,000 A) Project A B) Project B C) Project A and Project B have the same ranking. D) It cannot calculate a payback period without a discount rate. 7 Consider the cash flow of the two projects depicted in Table 3. If WiseGuy Inc. uses IRR rule to choose projects, which of the projects (Project A or Project B) will rank highest? A) Project A B) Project B C) Project A and Project B have the same ranking. D) It cannot calculate a payback period without a discount rate.
Financial Manager of Timmy Company is considering two projects (project A and project H), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project H (in $) 0 -100 -100 1 10 70 2 60 50 3 80 20 Timmy Company’s cost of capital is 10 percent. Calculate payback, NPV, IRR, and MIRR for both projects. (Please have a step by step format to your answer with explainations. Thanks (=)
The following are the net cash flow estimates (in thousands of dollars) of the two (2) proposed projects, you are planning to invest in. Expected Net Cash Flow Year Restaurant & Bar Hardware $M $M 0 (200) (200) 1 10 70 2 60…