Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 12, Problem 13P
a)
Summary Introduction
To discuss: The
b)
Summary Introduction
To determine: The
c)
Summary Introduction
To determine: The best project to select.
d)
Summary Introduction
To determine: The MIRR of each project’s if the cost of capital is 10% and 17%.
e)
Summary Introduction
To determine: The cross over rate and its importance.
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Students have asked these similar questions
Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows:
Construct NPV profiles for Projects A and B.
What is each project’s IRR?
If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?
What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.)
What is the crossover rate, and what is its significance?
Consider two investments with the following sequences of cash flows:
(a) Compute the IRR for each investment.(b) At MARR = 10%, determine the acceptability of each project.(c) If A and B are mutually exclusive projects, which project would you selecton the basis of the rate of return on incremental investment?
What are the internal rates of return (IRR) on the three projects? Does the IRR rule in this case give the same decision as NPV? How do you know?
If the opportunity cost of capital is 11%, what is the profitability index for each project? Please analyze if, in general, decisions based on the profitability index are consistent with decisions based on NPV.
What is the most generally accepted measure to choose between the projects? Please justify your answer.
Project
A
-5000
+1000
+1000
+3000
0
B
-1000
0
+1000
+2000
+3000
C
-5000
+1000
+1000
+3000
+5000
I will need full analysis (qualitative examples and references citations and examples of relative current investments of big companies.
Chapter 12 Solutions
Intermediate Financial Management
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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- Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion (b) Assume that projects C and È are mutually exclusive. Using the IRR criterion, which Project would you select? Net Cash Flow A В C D E -4,250 3,200 2,850 -4,250 1,500 3,250 1,600 1,200 -4,250 2,850 -4,850 2,100 2,100 2,100 2,100 2,500 1 -835 2,900 1,050 500 2 -835 3 800 -835 4 300 -835arrow_forwardTwo mutually exclusive investment projects are under consideration. It is assumed that the cash flows are statistically independent random variables with means and variances estimated as follows: (a) For each project, determine the mean and standard deviation for the PWusing an interest rate of 15%.(b) From the results of part (a), which project would you recommend?arrow_forwardOrg Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows: Expected cash flows year Project A Project B 0 -400 -575 1 95 150 2 110 200 3 118 250 4 125 275 5 140 230 6 150 180 a. What is each project’s IRR? b. What is the regular payback period for these two projects? c. What is the profitability index for each project if the cost of capital is 12%?arrow_forward
- The table below shows the internal rate of return (IRR%) for three investment projects A, B and C and their differences. According to capital investment A С>В b. A>B>C C. C>B>A d. B>C>A е. С>А>Вarrow_forwardConsider the two mutually exclusive investment projects given in the table below for which MARR = 12%. On the basis of the IRR criterion, which project would be selected under an infinite planning horizon with project repeatability likely? Click the icon to view the cash flows for the investment projects. The rate of return on the incremental investment is 42.3 %. (Round to one decimal place.) Which project would be selected on the basis of the IRR criterion? Choose the correct answer below. Project B Project A More Info (Click on the following icon in order to copy its contents into a spreadsheet.) Net Cash Flow Project A - $4,000 n 0 1 2 3 IRR 2,500 4,000 4,000 62.18% Project B - $10,500 9,500 9,500 50.57% Xarrow_forwardUse the information provided to answer the questions Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places).Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). Use your answers from previous question to recommend the project that should be chosen. Motivateyour choice.arrow_forward
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