Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 12, Problem 21P
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars):
- a. What is the regular payback period for each of the projects?
- b. What is the discounted payback period for each of the projects?
- c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake?
- d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?
- e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?
- f. What is the crossover rate?
- g. If the cost of capital is 10%, what is the modified
IRR (MIRR) of each project?
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Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10% 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
8
4
20
6
.
What is the regular payback period for each of the projects?
What is the discounted payback period for each of the projects?
If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake?
If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?
If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?
What is the crossover rate?
If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Your division is considering two investment projects, each of which requires an up-front expenditure of $25 million. You estimate that the cost of capital is 10 percent 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
8
4
20
6
What is the regular payback period for each of the projects?
What is the discounted payback period for each of the projects?
What is the accounting rate of return for each of the projects?
If the cost of capital is 11 percent, what is the modified IRR (MIRR) of each project?
Your company is currently considering two investment projects. Each project requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and the investments will produce the after tax cash flows on the attached image .
a)Calculate the payback period for both projects,then compare to identify which project the firm should undertake.
b)Evaluate the advantages and disadvantages of using the payback method in investment decisions and assess the situations where it should be used .
Chapter 12 Solutions
Intermediate Financial Management (MindTap Course List)
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. 4MCCh. 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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