b) Following data relate to five independent investment projects :Initial OutlayProjectsPORST1,000,000240,000184,00011,50080,000Annual Cash Inflows Life in Years250,00024,00030,0004,00012,00081520510Page 2 of 3Assume a 10% required rate of return and a 50% tax rate. Rank these five investment projectsaccording to each of the following criteria:(i) Pay-back Period.(ii) Accounting Rate of Return.(iii) Net Present Value Index.(iv) Internal Rate of Return.

Accounting Rate of Return is a traditional method which does not consider the time value of money..…

Assume a 10% required rate of return and a 50% tax rate. Rank these five investment projects according to each of the following criteria: (i) Pay-back Period. (ii) Accounting Rate of Return. (iii) Net Present Value Index. (iv) Internal Rate of Return.

Assume a 10% required rate of return and a 50% tax rate. Rank these five investment projects according to each of the following criteria: (i) Pay-back Period. (ii) Accounting Rate of Return. (iii) Net Present Value Index. (iv) Internal Rate of Return.

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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First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $686,053 $516,654 $295,458 Annual net cash flows: Year 1 411,000 288,000 177,000 Year 2 382,000 259,000 122,000 Year 3 349,000 230,000 89,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each project. Use the…
Consider the following two mutually exclusive projects: Year Cashflow (a) Cashflow (b) 0 - $318,844 -$27,476 1 $27,700 $9,057 2 $56,000 $10,536 3 $55,000 $11,849 4 $399,000 $13,814 The required return is 15 percent for both projects. Which one of the following statements related to these projects is correct?A. Because both the IRR and the PI imply accepting Project B, that project should be accepted.B. The profitability rule implies accepting Project A.C. The IRR decision rule should be used as the basis for selecting the project in this situation.D. Only NPV implies accepting Project A.E. NPV, IRR, and PI all imply accepting Project A.
Information on four investment proposals is given below:Investment ProposalA B C DInvestment required ........................ $(90,000) $(100,000) $(70,000) $(120,000)Present value of cash inflows ......... 126,000 138,000 105,000 160,000Net present value ............................ $ 36,000 $ 38,000 $ 35,000 $ 40,000Life of the project ............................ 5 years 7 years 6 years 6 yearsRequired:1. Compute the project profitability index for each investment proposal.2. Rank the proposals in terms of preference.
Bruin, Incorporated has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$ 41,300 1 19, 100 2 17,800 3 15, 200 4 8,400 -$ 41,300 6,300 14, 200 17,900 30,300 a-1. What is the IRR for each of these projects? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. If you apply the IRR decision rule, which project should the company accept? b-1. Assume the required return is 11 percent. What is the NPV for each of these projects? a-1. Project A Project B a-2. Project acceptance b-1. Project A Project B b-2. Project acceptance Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b-2. Which project will you choose if you apply the NPV decision rule? % %
Bruin, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$29,700 -$29,700 15,100 4,650 13,000 10,150 9,550 15,900 5,450 17,500 0123 + 4 a-1 What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Project A Project B a-2 Using the IRR decision rule, which project should the company accept? Project A O Project B % % 2 lo this decisi orrect
Investment Criteria. Consider two mutually exclusive projects, A and B, whose costs and cash flows are shown in the following table: Year Project A Project B 1 $(15,000) $(22,840) 2 9,000 8,000 3 8,000 8,000 4 2,500 8,000 5 3,000 24.192 8,000 15.00 Calculate the cross over rate.
Company A has provided figures for two investment projects, only one of which may be chosen. These are the calculations based on the figures: Payback Period The Accounting Rate of Return / Return on Capital Employed Net Present Value Project A 2 years 4 months 27.08% £63,705 Project B 2 years 7 months 39.47% £74.971 Analyse and provide recommendations as to what project needs to be chosen based on the calculations above.
Net Present Value Method, Present Value Index, and Analysis First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $863,421 $519,486 $311,214 Annual net cash flows: Year 1 358,000 243,000 165,000 Year 2 333,000 219,000 114,000 Year 3 304,000 194,000 83,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 6%,…
You are given the following financial information related to a capital investment project. What is the project's Year 1 Net Cash Flow? Sales revenues Depreciation Other operating costs Interest Exp Tax rate WACC Select one: a. $8,580 b. $8,900 c. $9,350 d. $9,463 e. $9,832 $22,250 $8,000 $12,000 $800 40.0% 12.0%
Given the following attributes of an investment project with a five-year life: investment outlay, year0, $5,000; after-tax cash inflows, year 1, $800; year 2, $900; year 3, $1,500; year 4, $1,800; and year5, $3,200. (a) Use the built-in NPV function of Excel to estimate the NPV of this project. Roundyour answer to the nearest whole dollar. Assume an after-tax discount rate of 12.0%. (b) Estimatethe payback period, in years, for this project under the assumption that cash inflows occur evenlythroughout the year. Round your answer to one 1 decimal place.
Here are the expected cash flows for three projects: Cash Flows (dollars) Year 2 Project A C Year 8 -6,588 -2,580 -6,500 Year 1 +1,375 +1,375 +2,588 +1,375 +1,375 Year 3 +3,758 +2,758 +3,750 Year 4 8 +3,750 +5,758 a. What is the payback period on each of the projects? b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept? d-1. If the opportunity cost of capital is 12%, calculate the NPV for projects A, B, and C. Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. d-2. Which projects have positive NPVs? e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? a. Payback period b. If you use the payback rule with a cutoff period of 2 years, which projects will you accept? c. If you use a cutoff period of 3 years, which projects will you accept?…
The following are the cash flows of two projects: Year 0 1 2 3 4 Project A $ (220) 100 100 100 100 Project B $ (220) 120 120 120 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 % %

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