Question

Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marge’s opportunity cost of capital is 12%.

Year |
Project A |
Project B |

0 |
−$20,000 |
−$20,000 |

1 |
15,000 |
2,000 |

2 |
15,000 |
2,500 |

3 |
13,000 |
3,000 |

4 |
3,000 |
50,000 |

Calculate payback period for both projects.

Answer #1

Marge Simpson Inc. has following business opportunities with
following cash flow information. Assume Marge’s opportunity cost of
capital is 12%.
Year
Project A
Project B
0
−$20,000
−$20,000
1
15,000
2,000
2
15,000
2,500
3
13,000
3,000
4
3,000
50,000
Calculate profitability index for both projects.
Calculate payback period for both projects.

Marge Simpson Inc. has following business opportunities with
following cash flow information. Assume Marge’s opportunity cost of
capital is 12%.
Year
Project A
Project B
0
−$20,000
−$20,000
1
15,000
2,000
2
15,000
2,500
3
13,000
3,000
4
3,000
50,000
Calculate NPV for both projects.
Calculate IRR for both projects (Hint: the equation of
calculating IRR).
Calculate profitability index for both projects.
Calculate payback period for both projects.
Which business opportunity is better? Use
IRRA=54.7%, IRRB=33.3%, cross over
point=14.1%. (Hint:...

Shannon Industries is considering a project which has the
following cash flows:
Year Cash Flow
0 ?
1 $2,000
2 $3,000
3 $3,000
4 $1,500
The project has a payback period of 2 years. The
firm’s cost of capital is 12 percent. What is
the project’s net present value? (round your answer
to the nearest $1.)
a. $ 570
b. $ 730
c. $2,266
d. $2,761
e. $3,766

12. Johnson Company has the opportunity to invest in two
projects. The cash flow for each project is as follows.
Year
Cash Flow (A)
Cash Flow (B)
0
$ (50,000.00)
$
(60,000.00)
1
$
17,000.00
$
14,000.00
2
$
22,000.00
$
15,000.00
3
$
16,000.00
$
25,000.00
4
$
10,000.00
$
275,000.00
Part 1: Assuming Smith Company has a 3 year payback cut off for
investing in projects, based on the payback method, which
project/projects should the company choose?...

Risky Business is looking at a project with the following
estimated cash flow:
Risky Business wants to know the payback period, NPV, IRR,
MIRR, and PI of this project.
The appropriate discount rate for the project is 8%.
If the cutoff period is 6 years for major projects,
determine whether the management at Risky Business will accept or
reject the project under the five different decision models.
Initial investment at start of project
13,500,000
Cash flow at end of year...

1. Newex, Inc. has a capital investment opportunity with the
following cash flows:
Year cash flow
0 (100,000)
1 45,000
2 35,000
3 30,000
4 20,000
Which of the following is closest to the project’s payback
period?
a) 4 years
b) 2 years
c) 3.7 years
d) 3.5 years
e) 2.7 years
2. Zoomit Corporation has a capital investment opportunity that
will cost $250,000. The cash inflows from year 1 through year 10
will be $40,000 each year. The firm’s...

Risky Business is looking at a project with the following
estimated cash flow:
Initial investment at start of project: $13,000,000
Cash flow at end of year one: $2,080,000
Cash flow at end of years two through six: $2,600,000
each year
Cash flow at end of years seven through nine: $2,496,000
each year
Cash flow at end of year ten: $1,920,000
Risky Business wants to know the payback period, NPV, IRR,
MIRR, and PI of this project. The appropriate discount rate...

Sorenson Motors (SM) is considering a project that has the
following cash flows:
Year Cash Flow
0 Initial Outlay
1 $2,000
2 3,000
3 3,000
4 1,500
The project has a payback period of 2.5 years. The weighted average
cost of capital is 12%. Which of the following statements is NOT
correct?
a. Acceptance of this project would increase SM’s value by
$7,265.91.
b. The project is expected to generate $1.12 for each $1.00 of
investment.
c. If SM were...

You are considering a project
with the following set of cash flows:
Cash
flow
0
-5,500
1
2,000
2
3,000
3
1,000
4
2,000
a. What is
the payback period of this project? If the
pre-specified cut off is 3 years,
should this project be accepted?
b. What is
the discounted
payback period of this
project? If the
pre-specified cut off is 3 years, should this project be
accepted? The discount rate is
10%.

Hawkeye Corp has two investment opportunities with the following
cash flows and IRRs. Hawkeye’s required return on each project is
9%. The projects are not mutually exclusive, so Hawkeye could
invest in both projects if it wants to. Which projects should
Hawkeye invest in using NPV?
Year 0
Year 1
Year2
Project A
-$6,000
$1,500
$6,500
Project B
$2,000
-$1,000
-$1,500
Group of answer choices
Both projects A and B
Only project B
Only project A
Neither project
Mass Company...

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