Projects S and L are equally risky, mutually exclusive, and have normal cash flows. Project S's IRR is 15%, while Project L's IRR is 12%. The two projects have the same NPV when the WACC is 7%. Which of the following statements is CORRECT? If the WACC for both projects is 10%, Project S will have a larger NPV than Project L. If the WACC for both projects is 18%, both projects will have positive NPVs. If the WACC for both projects is 13%, Project L will have a larger NPV than Project S. If the WACC for both projects is 9%, both projects will have negative NPVs. If the WACC for both projects is 6%, Project S will have a larger NPV than Project L.
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- Projects A and B are equally risky, mutually exclusive, and have normal cash flows. Project A has an IRR of 15%, while Project B's IRR is 12%. The two projects have the same NPV when the cost of capital is 7%. Which of the following statements is CORRECT? O If the cost of capital is 10%, both projects will have positive NPVS. O the cost of capital is 13%, Project A will have the lower NPV. O If the cost of capital is 6%, Project A will have the higher NPV. O If the cost of capital is 10%, both projects will have a negative NPV. O Project A's NPV is more sensitive to changes in cost of capital than Project B's.Projects S and L are equally risky, mutually exclusive, and have normal cash flows. Project S has an IRR of 15%, while Project L’s IRR is 12%. The two projects have the same NPV when the WACC is 7%. Which of the following statements is CORRECT? Group of answer choices If the WACC is 10%, both projects will have positive NPVs. If the WACC is 6%, Project S will have the higher NPV. If the WACC is 13%, Project S will have the lower NPV. Project S’s NPV is more sensitive to changes in WACC than Project L's. If the WACC is 10%, both projects will have a negative NPV.Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows: Construct NPV profiles for Projects A and B. What is each project’s IRR? If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) What is the crossover rate, and what is its significance?
- You must analyze two projects, X and Y. Each project costs$10,000, and the firm’s WACC is 12%. The expected cash flows are as follows:a. Calculate each project’s NPV, IRR, MIRR, payback, and discounted payback.b. Which project(s) should be accepted if they are independent?c. Which project(s) should be accepted if they are mutually exclusive?d. How might a change in the WACC produce a conflict between the NPV and IRR rankingsof the two projects? Would there be a conflict if WACC were 5%? (Hint: Plot theNPV profiles. The crossover rate is 6.21875%.)e. Why does the conflict exist?The following net cash flows relate to two projects: (i) Calculate the NPVs for each project, assuming 10% cost of capital.(ii) Assuming that the two projects are independent, would youaccept them if the cost of capital is 15%?(iii) What is the IRR of each project?(iv) Which of the two projects would you prefer if they are mutuallyexclusive, given a 15% discount rate? NET CASH FLOW (IN $1,000) Year 0 1 2 3 4 5 6 Project A -60 20 20 20 20 20 20 Project B -72 45 22 20 13 13 13Central Energy is considering two mutually exclusive projects, Project Red and Project The projects have the following cash flows: Year Project Red Cash Flows Project White Cash Flows 0 -$1,000 -$1,000 1 100 700 2 200 400 3 600 200 4 800 100 Assume that both projects have a 10 percent WACC. What is the internal rate of return (IRR) of the project that has the highest NPV?
- Using the net present value method, the present value of cash inflows for Project A is P44,000 and the present value of cash inflows of Project B is P24,000. If Project A and Project B require initial investments of P40,000 and P20,000, respectively, and have the same useful life, what is the project that should be accepted assuming the projects are mutually exclusive projects?Consider the following two investment alternatives:The firm's MARR is known to be 15%.(a) Compute the PW (15%) for Project A. (b) Compute the unknown cash flow X in years 2 and 3 for Project B.( c) Compute the project balance (at 15%) for Project A at the end of year 3.( d) If these two projects are mutually exclusive alternatives, which project would you select?Project A requires an investment of 1 million today and pays out 5 million in expectation next years. Project B requires an investment of $10 million today and pays out $ 20 million in expectation next year. Project B has high idiosyncratic risk and no systematic risk, while Project A is risk free. The two projects are mutually exclusive. Assume the risk free rate is if >0%, Given these assumptions. Project A has a higher NPV than Project B.
- The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $7,750 and has an expected life of 3 years. Annual net cash flows from each project begin 1 year after the initial investment is made and have the following probability distributions: Project B Project A Cash Flows Project A: $ Yes $ σ $ Project A Project B $ b. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent. x X * $ CV BPC has decided to evaluate the riskier project at an 11% rate and the less risky project at a 10% rate. a. What is the expected value of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A Project B X Net cash flow $ What is the coefficient of variation (CV)? (Hint: OB-$4,757.63 and CVB=$0.67.) Do not round intermediate calculations. Round a values to the nearest cent and CV values to two decimal…Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%? Cash Flow Project A Project B Year 0: –$12,500 Year 0: –$45,000 Year 1: 8,000 Year 1: 10,000 Year 2: 14,000 Year 2: 17,000 Year 3: 13,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 $11,776 $9,421 $7,066 $10,598 $7,654 Praxis Corp. is considering a three-year project that has a weighted average cost of capital of 11%…Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 13%? Cash Flow Project A Project B Year 0: –$17,500 Year 0: –$45,000 Year 1: 10,000 Year 1: 10,000 Year 2: 16,000 Year 2: 17,000 Year 3: 15,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 $9,656 $14,163 $10,944 $12,875 $10,300