Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Your division is considering two investment projects, each of which requires an up-front expenditure of $22 million. You estimate that the cost of capital is 8% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year Project A Project B
1
5
20
2
10
10
3
15
4
20
a. What is the regular payback period for each of the projects? Round your answers to two decimal places.
Project A:
years
Project B:
b. What is the discounted payback period for each of the projects? Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
years
years
Project B:
years
c. Calculate the NPV of the two projects. Do not round intermediate calculations. Round your answers to the nearest cent.
Project A: $
Project B: $
Calculate the IRR of the two projects. Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
%
Project B:
If the two projects are independent and the cost of capital is 8%, which project or projects should the firm undertake?
The firm should undertake -Select-
%
d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?
The firm should undertake -Select-
e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?
The firm should undertake -Select-
f. What is the crossover rate? Round your answer to two decimal places.
%
8
6
g. If the cost of capital is 8%, what is the modified IRR (MIRR) of each project? Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
%
Project B:
%
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Transcribed Image Text:Your division is considering two investment projects, each of which requires an up-front expenditure of $22 million. You estimate that the cost of capital is 8% and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 4 20 a. What is the regular payback period for each of the projects? Round your answers to two decimal places. Project A: years Project B: b. What is the discounted payback period for each of the projects? Do not round intermediate calculations. Round your answers to two decimal places. Project A: years years Project B: years c. Calculate the NPV of the two projects. Do not round intermediate calculations. Round your answers to the nearest cent. Project A: $ Project B: $ Calculate the IRR of the two projects. Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: If the two projects are independent and the cost of capital is 8%, which project or projects should the firm undertake? The firm should undertake -Select- % d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? The firm should undertake -Select- e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? The firm should undertake -Select- f. What is the crossover rate? Round your answer to two decimal places. % 8 6 g. If the cost of capital is 8%, what is the modified IRR (MIRR) of each project? Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: %
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