Question

Consider the case of Blue Hamster Manufacturing Inc.:

Blue Hamster Manufacturing Inc. has to choose between two mutually exclusive projects. If it chooses project A, Blue Hamster 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:

Cash Flows | |||
---|---|---|---|

Project A | Project B | ||

Year 0: | –$10,000 | Year 0: | –$40,000 |

Year 1: | 7,000 | Year 1: | 8,000 |

Year 2: | 15,000 | Year 2: | 16,000 |

Year 3: | 14,000 | Year 3: | 15,000 |

Year 4: | 12,000 | ||

Year 5: | 11,000 | ||

Year 6: | 10,000 |

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 12%?

**$12,959**

**$19,439**

**$21,599**

**$16,199**

Blue Hamster Manufacturing Inc. is considering a four-year
project that has a weighted average cost of capital of 12% and a
NPV of $-1,799. Blue Hamster can replicate this project
indefinitely. The equivalent annual annuity (EAA) for this project
is **______** .

**A: $-503**

**B -622**

**C: -710**

**D: -592**

Answer #1

Globex Corp. has to choose between two mutually exclusive
projects. If it chooses project A, Globex 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...

Globex Corp. has to choose between two mutually exclusive
projects. If it chooses project A, Globex 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...

4. Unequal project lives
Smith and Co. has to choose between two mutually exclusive
projects. If it chooses project A, Smith and Co. 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...

ABC Telecom has to choose between two mutually exclusive
projects. If it chooses project A, ABC Telecom 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...

Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of
its planning and financial data when both its main and its backup
servers crashed. The company’s CFO remembers that the internal rate
of return (IRR) of Project Delta is 11.3%, but he can’t recall how
much Blue Hamster originally invested in the project nor the
project’s net present value (NPV). However, he found a note that
detailed the annual net cash flows expected to be generated by
Project Delta. They...

Net present value (NPV)
Evaluating cash flows with the NPV method
The net present value (NPV) rule is considered one of the most
common and preferred criteria that generally lead to good
investment decisions.
Consider this case:
Suppose Blue Hamster Manufacturing Inc. is evaluating a proposed
capital budgeting project (project Beta) that will require an
initial investment of $2,750,000. The project is expected to
generate the following net cash flows:
Year
Cash Flow
Year 1
$325,000
Year 2
$475,000
Year...

Blue Hamster Manufacturing Inc. is a small firm, and several of
its managers are worried about how soon the firm will be able to
recover its initial investment from Project Sigma’s expected future
cash flows. To answer this question, Blue Hamster’s CFO has asked
that you compute the project’s payback period using the following
expected net cash flows and assuming that the cash flows are
received evenly throughout each year.
Complete the following table and compute the project’s
conventional payback...

Understanding the IRR and NPV
The net present value (NPV) and internal rate of return (IRR)
methods of investment analysis are interrelated and are sometimes
used together to make capital budgeting decisions.
Consider the case of Blue Hamster Manufacturing Inc.:
Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of
its planning and financial data when both its main and its backup
servers crashed. The company’s CFO remembers that the internal rate
of return (IRR) of Project Delta is 11.3%,...

The net present value (NPV) and internal rate of return (IRR)
methods of investment analysis are interrelated and are sometimes
used together to make capital budgeting decisions.
Consider the case of Blue Hamster Manufacturing Inc.:
Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of
its planning and financial data when both its main and its backup
servers crashed. The company’s CFO remembers that the internal rate
of return (IRR) of Project Delta is 11.3%, but he can’t recall how...

The net present value (NPV) and internal rate of return (IRR)
methods of investment analysis are interrelated and are sometimes
used together to make capital budgeting decisions.
Consider the case of Blue Hamster Manufacturing Inc.:
Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of
its planning and financial data when both its main and its backup
servers crashed. The company’s CFO remembers that the internal rate
of return (IRR) of Project Delta is 11.3%, but he can’t recall how...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 21 minutes ago

asked 27 minutes ago

asked 34 minutes ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago