Question

Here are the expected cash flows for three projects: Cash Flows (dollars) Project Year: 0 1...

Here are the expected cash flows for three projects:

Cash Flows (dollars)
Project Year: 0 1 2 3 4
A − 6,300 + 1,325 + 1,325 + 3,650 0
B − 2,300 0 + 2,300 + 2,650 + 3,650
C − 6,300 + 1,325 + 1,325 + 3,650 + 5,650

a. What is the payback period on each of the projects?

b. If you use a cutoff period of 2 years, which projects would you accept?

Project A

Project B

Project C

Project A and Project B

Project B and Project C

Project A and Project C

Projects A, B, and C

None

c. If you use a cutoff period of 3 years, which projects would you accept?

Project A

Project B

Project C

Project A and Project B

Project B and Project C

Project A and Project C

Projects A, B, and C

None

d-1. If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C. (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?

Project A

Project B

Project C

Project A and Project B

Project B and Project C

Project A and Project C

Projects A, B, and C

None

e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a.

Project A payback period= 3 years as it first three years cash flows sum is equal to 6300 which is the investment amount.

Project B payback period= 2 years as it first two years cash flows sum is equal to 2300 which is the investment amount.

Project C payback period= 3 years as it first three years cash flows sum is equal to 6300 which is the investment amount.

b.

Project B is answer as it is the only project which has payback of 2 year

c.

Projects A, B, and C as all three comes under 3 years payback

d.1.

NPV of A=-6300+1325/1.11^1+1325/1.11^2+3650/1.11^3+0/1.11^4=-1362.06

NPV of B=-2300+0/1.11^1+2300/1.11^2+2650/1.11^3+3650/1.11^4=3908.76

NPV of C=-6300+1325/1.11^1+1325/1.11^2+3650/1.11^3+5650/1.11^4=2359.77

d.2.

Project B and Project C based on calculation in d.1.

e.

false

the above are the answers

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Here are the expected cash flows for three projects: Project Year    0    1   ...
Here are the expected cash flows for three projects: Project Year    0    1    2 3 4 A    -5,400    +1,100 +1,100    +3,200 0 B    -1,400    0    +1,400    +2,200    +3,200 C    -5,400    +1,100 +1,100    +3,200 +5,200 a. what is the payback period on each of the projects? b. If you use a cutoff period of 2 years, which projects would you accept? c. If you use a cutoff...
Use the following mutually exclusive investment cash flows for the question(s) below: Project Year 0 Year...
Use the following mutually exclusive investment cash flows for the question(s) below: Project Year 0 Year 1 Year 2 Year 3 A -$200 $100 $100 $100 B -$275 $125 $125 $125 Based on the payback criterion, which of the following is NOT true? Multiple Choice With a payback cutoff of 2.5 years, both projects are acceptable. With a payback cutoff of 1.75 years, only Project A is acceptable. With a payback cutoff of three years, both projects are acceptable. With...
1.-You are evaluating a project that will cost $499,000​, but is expected to produce cash flows...
1.-You are evaluating a project that will cost $499,000​, but is expected to produce cash flows of $123,000 per year for 10 ​years, with the first cash flow in one year. Your cost of capital is 10.6% and your​ company's preferred payback period is three years or less. a. What is the payback period of this​ project? b. Should you take the project if you want to increase the value of the​ company? 2.- You are choosing between two projects....
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1...
ABC Corporation is considering a project that provides the following cash flows steam: Year 0 1 2 3 4 5 Cash flows -$1,000 $375 $425 $250 $110 $100 If WACC is 10%, what is NPV and should the company accept the project? Find IRR, MIRR, payback, and discounted payback period. Considering the following projects. Project Year 0 1 2 3 4 A Cash flows -$100 $35 $35 $35 $35 B Cash flows -$100 $60 $50 $40 $30 Project A has...
You've estimated the following cash flows (in $) for two projects: Year Project A Project B...
You've estimated the following cash flows (in $) for two projects: Year Project A Project B 0 -5,100 -7,650 1 1,325 1,325 2 2,148 2,148 3 3,444 6,967 The required return for both projects is 8%. What is the NPV for project A? What is the NPV for project B? Which project seems better according to the NPV method? Project A or Project B
You've estimated the following cash flows (in $) for two mutually exclusive projects: Year Project A...
You've estimated the following cash flows (in $) for two mutually exclusive projects: Year Project A Project B 0 -5,600 -8,400 1 1,325 1,325 2 2,148 2,148 3 4,193 8,192 The required return for both projects is 8%. Part 1 : What is the IRR for project A? 3+ Decimals Part 2 What is the IRR for project B? 3+ Decimals Part 3 Which project seems better according to the IRR method? Project A or Project B Part 4 What...
Year Project A Expected Cash Flows ($) 0 (1,250,000) 1 75,000 2 218,750 3 535,000 4...
Year Project A Expected Cash Flows ($) 0 (1,250,000) 1 75,000 2 218,750 3 535,000 4 775,000 5 775,000 Year Project B Expected Cash Flows ($) 0 (1,050,000) 1 650,000 2 500,000 3 226,250 4 137,500 5 62,500 Metrics Payback Period (in years) (A)3.54 (B)1.8 Discounted payback period (in years) (A)4.58 (B)2.72 Net Present Value (NPV) (A)$160,816 (B)$151,742 Internal Rate of Return (A)18.90% (B)23.84% Profitability Index (A)1.13 (B)1.14 Modified Internal Rate of Return (MIRR) (A)17.82% (B)18.15% a). Which of the...
Project S costs $19,000 and it's expected cash flows would be $6500 per year for 5...
Project S costs $19,000 and it's expected cash flows would be $6500 per year for 5 years. Mutually exclusive Project L costs $42,500 and it's expected cash flows would be $13,200 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? a. Project L, since NPVL > NPVs b. Both projects S and L, since both projects have IRR's > 0. c. Both projects S and L, since both projects have NPVs...
You've estimated the following cash flows (in $) for two projects: Year Project A Project B...
You've estimated the following cash flows (in $) for two projects: Year Project A Project B 0 -5,400 -8,100 1 1,325 1,325 2 2,148 2,148 3 3,942 7,751 The required return for both projects is 8%. A:What is the NPV for project A? B:What is the NPV for project B? C:Which project seems better according to the NPV method?
Here are the cash-flow forecasts for two mutually exclusive projects: Cash Flows (dollars) Year Project A...
Here are the cash-flow forecasts for two mutually exclusive projects: Cash Flows (dollars) Year Project A Project B 0 − 120 − 120 1 50 69 2 70 69 3 90 69 a-1. What is the NPV of each project if the opportunity cost of capital is 2%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) a-2. Which project would you choose? b-1. What is the NPV of each project if the opportunity cost of capital...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT