Reed River Apiary is considering which of two mutually exclusive project it should undertake to expand its covidex production considering the booming business. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10%, and the net after tax cash flows of the projects are as follows: Year Project M Project N “000” “000” 0 (200) (200) 1 35 218 2 80 10 3 90 10 4 75 4 5 20 3 Required: i) With technical reasoning, recommend, which project you would undertake? ii) “NPV is a vital technical appraisal method” Discuss this statement with relation to startup firms in your country

Reed River Apiary is considering which of two mutually exclusive project it should undertake to expand its covidex production considering the booming business. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10%, and the net after tax cash flows of the projects are as follows: Year Project M Project N “000” “000” 0 (200) (200) 1 35 218 2 80 10 3 90 10 4 75 4 5 20 3 Required: i) With technical reasoning, recommend, which project you would undertake? ii) “NPV is a vital technical appraisal method” Discuss this statement with relation to startup firms in your country

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 21P: Your division is considering two investment projects, each of which requires an up-front expenditure...

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Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Reed River Apiary is considering which of two mutually exclusive project it should undertake to expand its covidex production considering the booming business. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10%, and the net after tax cash flows of the projects are as follows: Year Project M Project N “000” “000” 0 (200) (200) 1 35 218 2 80 10 3 90 10 4 75 4 5 20 3 Required: Calculate the IRR of each project.
Reed River Apiary is considering which of two mutually exclusive project it should undertake to expand its covidex production considering the booming business. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10%, and the net after tax cash flows of the projects are as follows: Year Project M Project N “000” “000” 0 (200) (200) 1 35 218 2 80 10 3 90 10 4 75 4 5 20 3 Required: Calculate the IRR of each project. With technical reasoning, recommend, which project you would undertake “NPV is a vital technical appraisal method” Discuss this statement with relation to startup…
Reed River Apiary is considering which of two mutually exclusive project it should undertake to expand its covidex production considering the booming business. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10%, and the net after tax cash flows of the projects are as follows: Year Project M Project N “000” “000” 0 (200) (200) 1 35 218 2 80 10 3 90 10 4 75 4 5 20 3 Required: Calculate the IRR of each project. and recomend, with reasons, which project you would undertake (if any).
Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Initial investment Present value of future cash flows Required: 1. Is Shaylee able to invest in all of these projects simultaneously? 2-a. Calculate the profitability index for each project. 2-b. What is Shaylee's order of preference based on the profitability index? Complete this question by entering your answers in the tabs below. Req 1 Project A $ 435,000 785,000 Req 2A and 2B Is Shaylee able to invest in all of these projects simultaneously? Is Shaylee able to invest in all of these projects simultaneously? Project C $ 740,000 1,220,000 Project D $ 965,000 1,580,000
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MAN LTD is considering which of two mutually exclusive project it should undertake to expand its covidex production considering the booming business. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director thinks that the one with the higher IRR should be undertaken, especially as both projects have the same initial outlay and length of life. The company anticipates a cost of capital of 10%, and the net after tax cash flows of the projects are as follows: Year Project M Project N “000” “000” 0 (200) (200) 1 35 218 2 80 10 3 90 10 4 75 4 5 20 3 Required: Calculate the Internal Rate of Return for Project M and Project N and Recommend, with technical reasons, which project you would undertake (if any) . “Net present value has been rated by majority of the financial experts as the most reliable project appraisal technique.” Do you agree…
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The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,500,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company’s WACC is 8%, and project Delta has the same risk as the firm’s average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $425,000 Year 3 $475,000 Year 4 $450,000 Which of the following is the correct calculation of project Delta’s IRR?…
The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,400,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Blue Llama Mining Company’s WACC is 7%, and project Delta has the same risk as the firm’s average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $425,000 Year 3 $400,000 Year 4 $425,000 Q1. Which of the following is the correct calculation of project Delta’s…
Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $420,000 and has a present value of all its cash flows of $1,350,000. Project 2 requires an initial investment of $5 million and has a present value of all its cash flows of $6 million. (a) Compute the profitability index for each project.(b) Based on the profitability index, which project should the company select?