Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 16QP
Comparing Investment Criteria Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 10 percent.
| Year | AZM Mini-SUV | AZF Full-SUV |
| 0 | -$495,000 | -$960.000 |
| 1 | 352,000 | 385.000 |
| 2 | 198,000 | 464.000 |
| 3 | 165,000 | 319.000 |
- a. Based on the payback period, which project should be accepted?
- b. Based on the
NPV , which project should be accepted? - c. Based on the JRR, which project should be accepted?
- d. Based on this analysis, is incremental
IRR analysis necessary? If yes, please conduct the analysis.
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Consider the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
-$ 54,000
-$ 23,000
1
12,700
11,600
2
23,200
11,200
3
27,600
4
46,500
12,500
6,000
Whichever project you choose, if any, you require a rate of return of 14 percent on your Investment. If you apply the payback criterion, you will choose Project
NPV criterion, you will choose Project
If you apply the IRR criterion, you will choose Project
If you choose the profitability Index criterion, you will choose Project
Based on your first four answers, which project will you finally choose?
If you apply the
Consider the following two mutually exclusive projects:
Year
Cash flow project A
(RM)
0
1
2
3
4
-54,000
12,700
23,200
27,600
46,500
Cash flow Project B
(RM)
-23,000
11,600
11,200
12,500
6,000
Whichever project you choose, if you require a 14 percent return on your investment
i) Compute the payback period for both project
ii) Compute the Net Present Value (NPV) for both projects.
iii) Which project do you prefer and which? Fully explain the result of your analysis
Consider the following cash flows of two mutually exclusive projects for AZ-Motorcars. Assume the discount rate for both projects is 8 percent.
Year
AZMMini-SUV
AZFFull-SUV
0
–$
515,000
–$
865,000
1
333,000
363,000
2
206,000
446,000
3
163,000
303,000
a.
What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Payback period
AZM Mini-SUV
years
AZF Full-SUV
years
b.
What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
NPV
AZM Mini-SUV
$
AZF Full-SUV
$
c.
What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
IRR
AZM Mini-SUV
%
AZF…
Chapter 5 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - International Investment Projects In March 2014,...Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Calculating Payback Period and NPV Maxwell...Ch. 5 - Calculating Payback An investment project provides...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Prob. 5QPCh. 5 - Calculating IRR Compute the internal rate of...Ch. 5 - Calculating Profitability Index Bill plans to open...Ch. 5 - Calculating Profitability Index Suppose the...Ch. 5 - Cash Flow Intuition A project has an initial cost...Ch. 5 - Prob. 10QPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Problems with Profitability Index The Coris...Ch. 5 - Prob. 13QPCh. 5 - Comparing Investment Criteria Wii Brothers, a game...Ch. 5 - Profitability Index versus NPV Hanmi Group, a...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Comparing Investment Criteria The treasurer of...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QPCh. 5 - NPV and Multiple IRRs You are evaluating a project...Ch. 5 - Payback and NPV An investment under consideration...Ch. 5 - Multiple IRRs This problem is useful for testing...Ch. 5 - NPV Valuation The Yurdone Corporation wants to set...Ch. 5 - Calculating IRR The Utah Mining Corporation is set...Ch. 5 - Prob. 25QPCh. 5 - Calculating IRR Consider two streams of cash...Ch. 5 - Calculating Incremental Cash Flows Darin Clay, the...Ch. 5 - Prob. 28QPCh. 5 - Prob. 1MCCh. 5 - Seth Bullock, the owner of Bullock Gold Mining, is...
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