Question

A project costs $500,000 upfront and has the following cash flows: year 1. $100,000 year 2. $200,000 year 3. $300,000 year 4. $450,000 year 5. $550,000 calculate the NPV using an 11% discount rate. If this project is independent of other projects the company is considering and the firm has enough funds, should this project be accepted?

Answer #1

A project should be accepted if the NPV of the project is greater than or equal to zero

In the given case, outflow =$500000 upfront

Hence present value (PV) of outflow = $ 500000

Present value of inflow =Sum of all Inflow / (1+discount rate)^n

Where n=number of years

Here, PV of inflow = $ 100000/1.11 +200000/(1.11)^2+300000/(1.11)^3 +450000/(1.11)^4 +550000/(1.11)^5

=$ 90090.09+ 162324.48+219357.41+296428.94+326398.23 =$10,94,599.16

NPV=Pv of inflow -PV of outflow= $ (1094599.16-500000)= $ 594599.16

Since NPV is positive, the project should be accepted.

A 50-year project has a cost of $500,000 and has annual cash
flows of $100,000 in years 1-25, and $200,000 in years 26-50. The
company's required rate is 8%. Given this information, calculate
the payback of the project.

A 10-year project has a cost of $500,000 and has annual cash
flows of $100,000 in years 1-10. The company's required rate is 8%
c.m. Given this information, calculate the discounted payback of
the project?

1. Which of the following statements is correct?
a. A project with conventional cash flows is one with an initial
cash outflow followed by one or more cash inflows.
b. The NPV method determines how much the future value of cash
inflows exceeds the present value of costs.
c. All the answers are correct.
d. When two projects are independent, accepting one project
implicitly eliminates the other.
e. Conventional cash flow patterns could lead to conflicting
decisions by NPV and...

firm is considering a $12,000 risky project. The expected cash
flows are $3,000 in year 1, $5,000 in year 2, and $7,000 in year 3.
The firm's cost of capital is 11%, but the financial manager uses a
hurdle rate of 9% for less-risky projects and 13% for riskier
projects. Should the firm invest in this riskier project?
No, the NPV is -$578.05
Yes, the NPV is $578.05
No, the NPV is -$120.85
Yes, the NPV is $365.98
Yes, the...

Time
Proj A
Proj B
0
(1,000,000)
(500,000)
1
100,000
300,000
2
300,000
150,000
3
400,000
100,000
4
500,000
50,000
a) Calculate the IRR for each project and the incremental IRR
(if it exists). Round your answers to 2 decimal places.
b) Calculate the NPV for each project using a discount rate of
8%
c) If these projects are mutually exclusive, and a discount rate
of 8% is used, identify...

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 Black Sheep Broadcasting Company 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
$300,000
Year 2
$500,000
Year 3
$500,000
Year 4...

A project that costs $3,000 to install will provide annual cash
flows of $650 for the next 6 years. The firm accepts projects with
payback periods of less than 4 years.
a. what is the project's payback period? (round your answer to 3
decimal places)
c-1. what is project NPV if the discount rate is 2%? (round to 2
decimal places)
d-1. NPV of the project if the discount rate is 11%?

A company is considering a project with the following cash
flows:
Initial Investment = -$200,000
Cash Flows: Year 1 = $140,000
Year
4 = $80,000
Year
5 = $120,000
If the appropriate discount rate is 12%, what is the NPV of this
project?

A company is considering a project with the following cash
flows: Initial Investment = -$200,000 Cash Flows: Year 1 = $140,000
Year 4 = $80,000 Year 5 = $120,000 If the appropriate discount rate
is 12%, what is the NPV of this project?

GIVING THIS DATA, please answer 1 and 2 Questions;
Project A payback period = 100,000/25,000 = 4 Years
Project B payback period = 100,000/20,000 = 5 Years
1- go back to short answer above, and using that data calculate
NPV for projects A and B using a 10% discount rate.
2-In number 1 above, which project do you pick if they are
mutually exclusive? Which do you pick if they are independent and
the company has enough funds to do...

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