Question

a
firm must choose between two mutually exclusive projects, a &
b. project a has an initial cost of $10000. its projected net cash
flows are $800, $2000, $3000, $4000, and $5000 at the end of years
1 through 5, respectively. project b has an initial cost of $14000,
and its projected net cash flows are $7000, $5000, $3000, $2000,
and $1000 at the end of years 1 through 5, respectively. at what
cost of capital would the firm be indifferent to the two projects
(i.e. be willing to choose either one)?

3.47%

6.58%

6.82%

7.66%

7.18%

Answer #1

Here actually we need to calculate Cross over rate at which the NPV of both the projects will be same and as a result it will be indifferent.

Correct answer is option b. 6.58%

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. At
what cost of capital would the firm be...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $10000. Its projected net
cash flows are $800, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$14000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. The
firm’s cost of capital is 6.00%. Choose the...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%: Project...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%:
A....

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%:
The...

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...

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

Suppose you are given the following two projects A and B with
the cash flows below, if the cost of capital is 10%, what is the
Profitability Index (PI) of projects A and B?
Year
Project A
Project B
0
-5000
-6000
1
1500
1500
2
2000
2500
3
3000
4000
4
3500
4000
1.457;1.492
1.457;1.340
1.532;1.528
1.639;1.340
1.622;1.409

A firm has a WACC of 11% and is deciding between two mutually
exclusive projects. Project A has an initial investment of $61. The
additional cash flows for project A are: year 1 = $15, year 2 =
$37, year 3 = $67. Project B has an initial investment of $73.The
cash flows for project B are: year 1 = $56, year 2 = $42, year 3 =
$21. Calculate the payback and
NPV for each project. (Show all
answers...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 11 minutes ago

asked 13 minutes ago

asked 17 minutes ago

asked 21 minutes ago

asked 25 minutes ago

asked 30 minutes ago

asked 30 minutes ago

asked 31 minutes ago

asked 33 minutes ago

asked 34 minutes ago

asked 38 minutes ago

asked 42 minutes ago