You are a financial analyst for a division of General Motors. Your division is considering two investment projects to increase the use of robotics in automotive assembly, 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): Year Project A Project B 1 $5 $20 2 10 10 3 15 8 4 20 6 a.If the two projects are mutually exclusive and the cost of capital is 5%, using N

You are a financial analyst for a division of General Motors. Your division is considering two investment projects to increase the use of robotics in automotive assembly, 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): Year Project A Project B 1 $5 $20 2 10 10 3 15 8 4 20 6 a.If the two projects are mutually exclusive and the cost of capital is 5%, using N

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?
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The Janet Corporation is considering two mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project B Initial investment -$50,000 -$50,000 Cashflow year 1 15,625 0 Cashflow year 2 15,625 0 Cashflow year 3 15,625 0 Cashflow year 4 15,625 0 Cashflow year 5 15,625 100,000 The required rate of return on these projects is 10 percent. What is each project’s payback period? What is each project’s NPV? What is each project’s IRR? What has caused the ranking conflict? Which project should be accepted? Why?
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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 percent and that the investments will produce the following after-tax cash flows (in millions of dollars): Year Project A Project B 1 5 20 2 10 10 3 15 8 4 20 6 Required a. What is the regular payback period for project B. b. What is the discounted payback period for each of the projects?
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