INTERMEDIATE FINAN.MGMT.(LL)-W/MINDTAP
14th Edition
ISBN: 9780357533611
Author: Brigham
Publisher: CENGAGE L
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Chapter 12, Problem 10P
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
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Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?
Project S requires an initial outlay at t = 0 of $16,000, and its expected cash flows would be $5,000 per year for 5
years. Mutually exclusive Project L requires an initial outlay at t = 0 of $30,500, and its expected cash flows would be
$9,450 per year for 5 years. If both projects have a WACC of 16%, which project would you recommend?
Select the correct answer.
O a. Project S, because the NPVS > NPVL.
O b. Both Projects S and L, because both projects have NPV's > 0.
c. Both Projects S and L, because both projects have IRR's > 0.
O d. Project L, because the NPVL > NPVS.
O e. Neither Project S nor L, because each project's NPV < 0.
Project S has a cost of $9,000 and is expected to produce benefits (cash flows) of $2,700 per year for 5 years. Project L costs $26,000 and is expected to produce cash flows of $7,100 per year for 5 years.
Calculate the two projects' NPVs, assuming a cost of capital of 10%. Do not round intermediate calculations. Round your answers to the nearest cent.
Project S: $
Project L: $
Which project would be selected, assuming they are mutually exclusive?
Based on the NPV values,
would be selected.
Calculate the two projects' IRRs. Do not round intermediate calculations. Round your answers to two decimal places.
Project S: %
Project L: %
Which project would be selected, assuming they are mutually exclusive?
Based on the IRR values,
would be selected.
Calculate the two projects' MIRRs, assuming a cost of capital of 10%. Do not round intermediate calculations. Round your answers to two decimal places.
Project S: %
Project L: %
Which project would be selected, assuming they are…
Chapter 12 Solutions
INTERMEDIATE FINAN.MGMT.(LL)-W/MINDTAP
Ch. 12 - What types of projects require the least detailed...Ch. 12 - Prob. 3QCh. 12 - Prob. 4QCh. 12 - Prob. 5QCh. 12 - A project has an initial cost of 40,000, expected...Ch. 12 - IRR Refer to Problem 12-1. What is the projects...Ch. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6P
Ch. 12 - Your division is considering two investment...Ch. 12 - Edelman Engineering is considering including two...Ch. 12 - Prob. 9PCh. 12 - Project S has a cost of $10,000 and is expected to...Ch. 12 - Prob. 11PCh. 12 - After discovering a new gold vein in the Colorado...Ch. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - The Pinkerton Publishing Company is considering...Ch. 12 - Shao Airlines is considering the purchase of two...Ch. 12 - The Perez Company has the opportunity to invest in...Ch. 12 - Filkins Fabric Company is considering the...Ch. 12 - The Ulmer Uranium Company is deciding whether or...Ch. 12 - The Aubey Coffee Company is evaluating the...Ch. 12 - Your division is considering two investment...Ch. 12 - The Scampini Supplies Company recently purchased a...Ch. 12 - You have just graduated from the MBA program of a...Ch. 12 - Prob. 2MCCh. 12 - Define the term “net present value (NPV).” What is...Ch. 12 - Prob. 5MCCh. 12 - What is the underlying cause of ranking conflicts...Ch. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - Prob. 9MCCh. 12 - Prob. 10MCCh. 12 - In an unrelated analysis, you have the opportunity...Ch. 12 - Prob. 12MC
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- Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects' NPVs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to the nearest cent. Project S: $ Project L: $ Which project would be selected, assuming they are mutually exclusive? Based on the NPV values, -Select-Project SProject LItem 3 would be selected. Calculate the two projects' IRRs. Do not round intermediate calculations. Round your answers to two decimal places. Project S: % Project L: % Which project would be selected, assuming they are mutually exclusive? Based on the IRR values, -Select-Project SProject LItem 6 would be selected. Calculate the two projects' MIRRs, assuming a cost of capital of 12%. Do not round intermediate calculations. Round your answers to two decimal places. Project S: %…arrow_forwardYou 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:a. Calculate each project’s NPV, IRR, MIRR, payback, and discounted payback.b. Which project(s) should be accepted if they are independent?c. 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 and IRR rankingsof the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot theNPV profiles. The crossover rate is 6.21875%.)e. Why does the conflict exist?arrow_forwardProject S requires an initial outlay at t=0 of $12,000, and its expected cash flows would be $4,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $38,500, and its expected cash flows would be $9,200 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? Select the correct answer. Oa. Both Projects S and L, because both projects have NPV's > 0. Ob. Project S, because the NPVs > NPVL Oc. Both Projects S and L, because both projects have IRR's > 0. Od. Neither Project S nor L, because each project's NPV NPVs.arrow_forward
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Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License