Question

Year 1 2 3 4 5

$20,000 $32,000 $8,000 $2,000 $3,000

Initial Investment is $50,000

A) What is the project’s payback period? Will you accept the project if the required payback period is 4 years?

B) What is the project’s fair value or present value if you require a 20% return?

C) What is the project’s NPV? Will you accept the project?

D) Explain why the above two techniques lead you to different decisions.

E) What is the project’s IRR? Is the project acceptable if you require a 20% return?

Answer #1

Please show your steps! Question 1
a) What is the NPV, IRR, and payback period of a project with
the following cash flows if WACC is 20%?
Time: 0
1
2
3
4
5
-$350,000
$100,000
$100,000
$100,000
$50,000
$50,000
NPV=
IRR=
Payback period=
b) Should you accept or reject the project according to NPV and
IRR?
*can you please include greater than an less than signs.* Thank
you.

Use the following information to answer questions 1 through 4:
Bumble Bees has identified the following project. The required
return on the project is 9 percent. Year Cash Inflows 0 -$150,000 1
$90,000 2 $70,000 3 $90,000 4 $100,000 1. What is the net present
value of the project? 2. What is the IRR of the project? 3. What is
the payback period of the project? 4. What is the profitability
index of the project? 5. If a project’s payback...

Senior management asks you to recommend a decision on which
project(s) to accept based on the cash flow forecasts provided.
Relevant information:
The firm uses a 3-year cutoff when using the payback
method.
The hurdle rate used to evaluate capital budgeting projects is
15%.
The cash flows for projects A, B and C are provided below.
Project A
Project B
Project C
Year 0
-30,000
-20,000
-50,000
Year 1
0
4,000
20,000
Year 2
7,000
5,000
20,000
Year 3
20,000...

Spreadsheet Exercise The Drillago Company is involved in
searching for locations in which to drill for oil. The firm’s
current project requires an initial investment of $15 million and
has an estimated life of 10 years. The expected future cash inflows
for the project are as shown in the following table. Year Cash
inflows 1 $ ?600,000 2 1,000,000 3 1,000,000 4 2,000,000 5
3,000,000 6 3,500,000 7 4,000,000 8 6,000,000 9 8,000,000 10
12,000,000 The firm’s current cost of...

You are analyzing a project and have prepared the following
data:
Year Cash flows
0 -$275,000
1 $ 50,000
2 $ 75,000
3 $ 95,000
4 $ 15,000
Required payback period 3 years
Required rate of return 5%
You are required to:
a) Determine the project’s Profitability Index, Internal Rate of
Return, NPV and Discounted Payback
Period
b) Decide whether to accept the project based on the above
investment decision criteria?

Assume the cost of capital for the firm for which you work is
10%. You are analyzing some projects with various capital budgeting
techniques. You have decided a payback period of four years or
better is acceptable.
Find the NPV for the project with the following cash flows and
state whether the project is acceptable.
YR Cash Flow
-$750,000
$250,000
$350,000
$375,000
Find the Payback Period and Discounted Payback Period for the
project with the following cash flows and state...

1. Learning Objectives
(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
1) Life Period of the Equipment = 4 years
8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
6) Accounts Payable...

1. Learning Objectives
(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
1) Life Period of the Equipment = 4 years
8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
6) Accounts Payable...

1. Learning Objectives
(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
(b) Compute Net Project Cash
flows, NPV, IRR and PayBack Period
1) Life Period of the Equipment = 4 years
8) Sales for first year (1)
$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
6) Accounts Payable...

Project A has a net present value of $1,500, a payback period of
2 years, and an internal rate of return of 12%. Project
B has a net present value of $1,800, a payback period of 4 years,
and an internal rate of return of 10%. Project C has a
netpresent value of $1,750, a payback period of 3 years, and an
internal rate of return of 11%. If the projects are
mutually exclusive, which project should be undertaken?
A.
Project A because...

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