Week 3 Homework

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5.37 solve using formulas

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Project A - 10,000 Project B - 10,000 4000 3000 10,000 5000 4000 3000 A. Project A B. Project B C. Neither project, - both have a NPV of 0. Project C - 10,000 3000 4000 5000 Time 0 Time 1 Time 2 Time 3 If WiseGuy Inc is choosing one of the above mutually exclusive projects (Project A or Project B), given a discount rate of 8%, which should the company choose? D. Both projects, - both have positive NPV. E. Neither project,- both have negative NPV. Project D - 10,000 4000 4000 4000 Project E - 10,000 2000 6000 10,000

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Value/other investment criteria (i Saved Help Save Consider the following two projects: Cash flows Project A Project B -$270 CO -$270 С1 115 143 C2 115 143 Сз 115 143 C4 115 a. If the opportunity cost of capital is 10%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 10%. Which one would you choose if the cost of capital is 15%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h-1. If the opportunity cost of capital is 10%, what is the profitability index for each project? h-2. Is the project with the highest profitability index also the one with the highest NPV? h-3. Which measure should you use to choose between the projects? Complete this question by…

pm.5   Find the expected rate of return using the three estimates provided in the table below for a project. Data Pessimistic Most Likely Optimistic First Cost, $ 1,052 1,000 1000 Benefits / Year 190 198 200 Life , Years 9 12 12 Salvage Value 0 0 100     A. 11.93%   B. 16.33%   C. 13.17%   D. 14.20%

6) Year Project A Project B Difference     0 -75000 -75000 0     1 26300 24000 2300     2 29500 26900 2600     3 45300 51300 -6000     Crossover rate 14.60%   Hi I need help with the following question! Thank you! Are you going to accept project A or project B? Why?

1) You are considering the following mutually exclusive projects: (15pts) 1 4. Project A -400 50 50 50 230 230 Project B -600 300 300 50 50 50 if the firm required return (WACC) is 10%: a. What is the NPV of project A? b. What is the IRR of project A? C. What is the NPV of project B? d. What is the IRR of project B? e. Which one you must select? a. b. C. d. e.

FIN 6020 v19f Perez Company: Mutually Exclusive Projects with Different Lives. Ch 10 (10-17) Again, you are considering two mutually exclusive projects. Machine A: This project costs $10 million. The expected net cash flows are $4 million per year for 4 years, when is to be replaced. Machine B: It costs $15 million, and has expected cash flows of $3.5 per year for 8 years, when it will be replaced. The cost of capital is 10%. Machine prices are expected to stay steady as production efficiencies are expected to offset inflation. Evaluate these projects. a. Calculate NPV, IRR, Replacement Chain, and Equivalent Annual Annuity. b. Which project should be company accept?

NPV and project selection   Project A Project B       initial investment -50000 -60000       Year 1 5000 4000       Year 2 6000 7000       Year 3 7000 14000       Year 4 9000 13000       Year 5 4000 4000       Year 6 9000 9000       Year 7 5000 10000       Year 8 8000 8000       Year 9 9000 9000       Year 10 5000 7000         Calculate the NPV of each project with a 4% discount rate. Which project(s) will be undertaken if all are mutually exclusive (still 4% discount)? Which project(s) will be undertaken if all are independent and the firm only has $125k in available capital (still 4% discount)? Which projects will be undertaken if all are independent and the firm’s cost of capital is 3%? Please do in Excel and show steps