Directions: Rezad and solve the problem below by using the Net Present Value Method. A firm is evaluating two projects. The firm's cost of capital (approprinte discount rate) has been determined to be %, and the projects have the following initial investments and cash flows: Project Q Project Y nitial Investment: 150 000 148 000 ash Flows: 1 r20 000 130 000 2 125 000 135 000 l'15 000 P40 000 4 P20 000 P10 000 hich project should the company pursue? Why?

Directions: Rezad and solve the problem below by using the Net Present Value Method. A firm is evaluating two projects. The firm's cost of capital (approprinte discount rate) has been determined to be %, and the projects have the following initial investments and cash flows: Project Q Project Y nitial Investment: 150 000 148 000 ash Flows: 1 r20 000 130 000 2 125 000 135 000 l'15 000 P40 000 4 P20 000 P10 000 hich project should the company pursue? Why?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 23SP: Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site....

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Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site. Gardial Fisheries is considering two mutually exclusive investments. The projects expected net cash flows are as follows: a. If each projects cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice? b. Construct NPV profiles for Projects A and B. c. What is each projects IRR? d. What is the crossover rate, and what is its significance? e. What is each projects MIRR at a cost of capital of 12%? At r = 18%? (Hint: Consider Period 7 as the end of Project Bs life.) f. What is the regular payback period for these two projects? g. At a cost of capital of 12%, what is the discounted payback period for these two projects? h. What is the profitability index for each project if the cost of capital is 12%?
Consider the following projects: Cash Flows ($) Project D E CO00 C101 -11,700 23,400 -21,700 37,975 Assume that the projects are mutually exclusive and that the opportunity cost of capital is 12%. a. Calculate the profitability index for each project. b-1. Calculate the profitability-index using the incremental cash flows. b-2. Which project should you choose?
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