Look at the cash flows for projects F and G given below. Cash Flows ($) Project Co F G Project F Project G C6 C8 C1 C2 C3 (6,000) 4,400 4,400 4,400 C4 C5 0 0 0 0 52.8 4,942 (6,000) 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 32.9 5,737 Project F Project G The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects' sponsors, instructs them to use a discount rate of 18%. a. What are the projects' true NPVS? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) NPV at 10% IRR (8) C7 0 NPV at 10% NPV at 18% b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)

Look at the cash flows for projects F and G given below. Cash Flows ($) Project Co F G Project F Project G C6 C8 C1 C2 C3 (6,000) 4,400 4,400 4,400 C4 C5 0 0 0 0 52.8 4,942 (6,000) 2,200 2,200 2,200 2,200 2,200 2,200 2,200 2,200 32.9 5,737 Project F Project G The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects' sponsors, instructs them to use a discount rate of 18%. a. What are the projects' true NPVS? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) NPV at 10% IRR (8) C7 0 NPV at 10% NPV at 18% b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Look at the cash flows for projects F and G given below. Cash Flows ($) NPV IRR at Project со F G C1 C2 C3 C4 (15,000) 7,200 7,200 7,200 Ө (15,000) 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 17.3 4,206 C5 C6 C7 Cg (%) 10% 0 Ө Ө Ө 20.7 2,905 The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 7% on average. That is, the forecast for each cash flow from each project should be reduced by 7%. But a lazy financial manager, unwilling to take the time to argue with the projects' sponsors, instructs them to use a discount rate of 17%. a. What are the projects' true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) Project F Project G NPV at 10% b. What are the NPVs at the 17% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) Project F Project G NPV at 17%
The following are the cash flows of two projects: Project B Year Project A 0 $ (235) $ (235) 115 135 115 135 115 135 115 1234O 1 2 3 4 What are the internal rates of return on projects A and B? Note: Enter your answers as a percent rounded to 2 decimal places. Project A B IRR % %
Consider the following information: Cash Flows ($) Project C0 C1 C2 C3 C4 A –5,300 1,300 1,300 2,700 0 B –700 0 600 2,300 3,300 C –5,200 3,400 1,700 800 300 a. What is the payback period on each of the above projects? (Round your answers to 2 decimal places.)
Look at the cash flows for projects F and G given below. Cash Flows($) Project C0 C1 C2 C3 C4 C5 C6 C7 C8 IRR (%) NPV at 10% F (7,500 ) 5,000 5,000 5,000 0 0 0 0 0 44.6 4,934 G (7,500 ) 2,400 2,400 2,400 2,400 2,400 2,400 2,400 2,400 27.4 5,304 The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects’ sponsors, instructs them to use a discount rate of 18%.a. What are the projects’ true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.) b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)
Look at the cash flows for projects F and G given below. Cash Flows($) Project C0 C1 C2 C3 C4 C5 C6 C7 C8 IRR (%) NPV at 10% F (8,000 ) 5,200 5,200 5,200 0 0 0 0 0 42.6 4,932 G (8,000 ) 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 28.0 5,871 The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects’ sponsors, instructs them to use a discount rate of 18%.
Consider two mutually exclusive investment alternatives given in the table below. Click the icon to view the cash flows for the projects. (a) Determine the IRR on the incremental investment in the amount of $5,000. (Assume that MARR = 11%.) The rate of return on the incremental investment is%. (Round to two decimal places.)
Consider projects A and B: Cash Flows (dollars) Project A Co -30,500 C1 C2 21,400 21,400 NPV at 11% +$6,148.00 B -50,500 33,500 33,500 + 6,869.53 a. Calculate IRRS for A and B. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project A B IRR % % b. Which project does the IRR rule suggest is best? O Project A ○ Project B c. Which project is really best? ○ Project A O Project B k
Consider a project with the following cash flows: Time 0 1 2 3 4 5 CF -$5,000 $5,000 $4,000 $2,000 $1,000 -$6,000 Please round your answer to two decimal places. (e.g. 12345.67 for $12,345.67; 12.34 for 12.34%) a) To calculate the MIRR, find the modified cash flow at year 5 b) What does excel (or your calculator) say the IRR is?
6. You are choosing between two projects. The cash flows for the projects are given in the following Data table ($ million): Project Year 0 Year 1 Year 2 Year 3 Year 4 A −$48 $27 $19 $22 $15 B −$100 $22 $39 $48 $62 The IRR for project A is __________________________%. (Round to one decimal place.) The IRR for project B is____________________________%.(Round to one decimal place.) If your discount rate is 5.4%, the NPV for project A is $_______________million.(Round to two decimal places.) If your discount rate is 5.4%, the NPV for project B is $______________ million.(Round to two decimal places.) NPV and IRR rank the two projects differently because they are measuring different things. ___________________is measuring value creation, while ___________________is measuring return on investment. Because returns do not scale with different levels of investment, the two measures may give different rankings when…
Spreadsheet Link What is the IRR of the following project?Cash FlowYear0 -32,0001. 9,0002. 10,0003. 15,0004. 7,800 1). 10.8% 2). 11.2% 3). 11.7%4). 12.0% 5). 12.3%
4. Please evaluate the two projects for which cash flows are given below: Project NANO Project GENES Years (75,000) 30,000 30,000 30,000 30,000 225,000 Evaluate the projects as they are independent or mutually exclusive. Please use NPV and IRR for decision making. Discount rate is 12%. 0 1 2 3 4 (95,000) 0 0 0
Compute the NPV statistic for Project U given the following cash flows if the appropriate cost of capital is 9 percent. Project U Time 0 1 2 3 4 5 Cash Flow –$ 1,000 $ 350 $ 1,480 –$ 520 $ 400 –$ 100

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