Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements,
and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 7%.
1
2
3
4
Project A
-920
650
350
240
290
Project B
-920
250
285
390
740
What is Project A's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.
$
What is Project B's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.
$
If the projects were independent, which project(s) would be accepted?
|-Select-
If the projects were mutually exclusive, which project(s) would be accepted?
-Select-
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- Describe the Incremental-Investment Analysis for Comparing Mutually Exclusive Alternatives?arrow_forwardWhy do we need to use the incremental analysis when comparing mutually exclusive projects?arrow_forwardWhich of the following were listed as potential Problems or Issues associated with Using a Rate of Return Approach to justifying single or multiple Mutually Exclusive projects? Note: This is a Multiple Answer question. Please select all of the following options you think are correct? O The ROR calculations are typically more complex than the PW, AW, or FW methods and frequently require the use of trial and error techniques. O You cannot rely on the best Mutually Exclusive project to have the highest ROR. O An incremental approach is required to reliably determine the best project when comparing multiple Mutually Exclusive projects with the ROR approach. O This method assumes that any net positive cash flows are reinvested at the ROR rate. If the ROR rate is substantially larger than MARR, this might not be a realistic assumption. OFor any sequence of Net Cash Flows with more than one sign chance over the life of the project there may be more than one ROR value that satisfies the Rate…arrow_forward
- State whether the following statement true or false and provide a brief explanationarrow_forward29....When using the NPV method the decision making rationale includes the following (select all that apply): a.If projects are mutually exclusive, accept the project with the highest positive NPV. b.If projects are independent, accept if the project NPV<0. c.If projects are independent, accept if the project NPV>0 d.If the projects are mutually exclusive, accept the project with lowest NPV.arrow_forwardDescribe one advantage and one disadvantage of the NPV methodology of evaluating proposed projectsarrow_forward
- How many IRRs could be estimated for each project below: Project A has ________ (1, 2, 3, or 4) IRR(s). Project B has _________(1,2, 3, or 4) IRR(s). Project C has _________(1,2, 3, or 4) IRR(s). Project D has _________(1,2, 3, or 4) IRR(s)arrow_forwardWhat is the difference between a mutually exclusive project/investment and an independent project/investment? What is the best method or technique (NPV, IRR, Payback, Discounted Payback) to use in evaluating each type of project?arrow_forward
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