Question

18) a firm needs to decide between two mutually exclusive projects. Porject Alpha requires an initial investment of $29,000 today and is expected to generate cash flow of $43,000 for the next 3 years. Project Beta requires an initial investment of $60,000 and is expected to generate cash flows of $45,000 for the next 6 years. The cost of capital is 11%. The projects can be repeated with no change in cash flows. What is the NPV of the project that would be selected based on the replacement chain analysis?

A) project beta; $140,439

B) Project alpha; $132,489

C) project beta; $132,489

D) project beta; $140,928

E) project alpha; $131,709

Answer #1

Year | Alpha | Beta |

0 | -29,000 | -60,000 |

1 | 43,000 | 45,000 |

2 | 43,000 | 45,000 |

3 | 14,000 | 45,000 |

4 | 43,000 | 45,000 |

5 | 43,000 | 45,000 |

6 | 43,000 | 45,000 |

NPV | $131,709 | $130,374 |

Forecast the cash flows for both projects as shown above. For Project Alpha in year 3, you need to start the chain again by investing 29,000.

NPV can be calculated using NPV function on a calculator or excel with 11% discount rate given the above cash flows.

We get NPV of Project Alpha is higher and is equal to $131,709. Hence, E is correct.

A firm needs to decide between two mutually exclusive projects.
Project Alpha requires an initial investment of $37,000 today and
is expected to generate cash flows of $31,000 for the next 4 years.
Project Beta requires an initial investment of $92,000 and is
expected to generate cash flows of $36,400 for the next 8 years.
The cost of capital is 10%. The projects can be repeated with no
change in cash flows. What is the NPV of the project that...

A firm needs to decide between two mutually exclusive projects.
Project Alpha requires an initial investment of 50,000 today and is
expected to generate cash flows of 51,000 for the next 3 years.
Project Beta requires an intial investment of 85,000 and is
expected to generate cash flows of 49,700 for the next 6 years. The
cost of capital is 6%. The projects can be repeated with no charge
in cash flows. What is the NPV of the project that...

A firm is considering the two mutually exclusive investments
projects. Project Alpha requires an initial outlay of $600 and will
return $160 per year for the next seven years; Project Beta
requires an initial outlay of $1,100 and will return $350 per year
for the next five years. Assuming a 11% required return, calculate
the NPV, Payback Period, and MIRR of each project.
Please help by showing Excel calculations. Thanks!

Haley’s Crockett Designs Inc. is considering two mutually
exclusive projects. Both projects require an initial investment of
$11,000 and are typical average-risk projects for the firm. Project
A has an expected life of 2 years with after-tax cash inflows of
$8,000 and $10,000 at the end of Years 1 and 2, respectively.
Project B has an expected life of 4 years with after-tax cash
inflows of $8,000 at the end of each of the next 4 years. The
firm’s WACC...

14) A firm needs to estimate the equivilent annual annuity (EAA)
of two projects, since these projects can be repeated indefinitely.
Project X requires an initial investment of $41,000 today and is
expected to generate annual cash flows of $12,000 for the next 26
years. Project Y requires an initial investment of $200,000 and is
expected to generate monthly cash flows of $2,900 for the next 13
years. The cost of capital is 7%. The _____ has the highest EAA,...

Project X and Project Y are two mutually exclusive projects.
Project X requires an initial outlay of $38,000 and generates a net
cash flow of $14,000 per year for six years. Project Y requires an
initial outlay of $52,000, and will generate cash flows of $15,300
per year for eight years. Which project should be chosen and why?
(Assume that the discount rate for both projects is 10
percent).
A. Project X because Project X has
a larger NPV than Project...

You have to evaluate two mutually exclusive projects Alpha and
Beta. Both projects have a cost fo capital is 12%. Both projects
have an economic life of 5 years.
Project Alpha has a cost of $14,000. Its expected cash flows are
an annuity of $4,500 per annum.
Project Beta has a cost of $14,000. It has one expected cash
flow at the end of period 5 $30,000.
We must figure out the NPR, IRR and CHOICE for both Alpha and...

A firm needs to estimate the equivalent annual annuity (EAA) of
two projects, since these projects can be repeated indefinitely.
Project X requires an intial investment of 31,000 today and is
expected to generate annual cash flows of 11,000 for the next 21
years. Project Y requires an intial investment of 120,000 and is
expected to generate monthly cash flows of 1,800 for the next 15
years. The cost of capital is 10%. The ____ has the highest EAA,
which...

A firm needs to estimate the Equivalent Annual Annuity (EAA) of
two projects can be repeated indefinitiley. Project X requires an
intial investment of 46,000 today and is expected to generate
annual cash flows of 12,000 for the next 24 years. Project Y
requirs an initial investment of 170,000 and is expected to
generate monthly cash flows of 2,800 for the next 10 years. The
cost of capital is 12%. The ____ has the highest EAA, which is ____
A.)...

A
firm has a WACC of 8% and is deciding between two mutually
exclusive projects. Project A has an initial investment of $63. The
additional cash flows for project A are: year 1 = $20, year 2 =
$39, year 3 = $67. Project B has an initial investment of $73.The
cash flows for project B are: year 1 = $60, year 2 = $45, year 3 =
$32. Find the Payback and NPV for each project

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 56 minutes ago

asked 59 minutes ago

asked 1 hour 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

asked 3 hours ago