Question

Suppose a project has conventional cash flows and a positive net present value. What do you...

Suppose a project has conventional cash flows and a positive net present value. What do you know about its payback? Its profitability index? Its IRR? Explain.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

From the given case If we have a project with a positive NPV for a given rate, then it will also have a positive NPV for a zero discount rate. Therefore, the payback period must be less than the project life. Also the discounted payback is calculated with the same rate as in NPV, if NPV is positive, the discounted payback period will be lesser than the project's life. If NPV is positive, then the PV of the future cash inflows will be greater than the initial outlay costs, thus, Profitability index must be greater than 1. Finally, if the NPV is positive for a certain discount rate i, then it will be zero for some larger rates. Therefore, the IRR must be greater than the required return.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are considering a project with conventional cash flows and the following characteristics: Discounted Payback 2.95...
You are considering a project with conventional cash flows and the following characteristics: Discounted Payback 2.95 Years NPV $510,000 IRR 12% Which of the following statements is correct given this information? I. The discount rate used in computing the net present value was greater than 12%. II. The payback period must be greater than 2.95 years. III. This project should be accepted as the NPV is positive.
11. The discount rate that makes the net present value of an investment exactly equal to...
11. The discount rate that makes the net present value of an investment exactly equal to zero is the: A) Payback period. B) Internal rate of return. C) Average accounting return. D) Profitability index. E) Discounted payback period. 12. The internal rate of return (IRR) rule can be best stated as: A) An investment is acceptable if its IRR is exactly equal to its net present value (NPV). B) An investment is acceptable if its IRR is exactly equal to...
What is the net present value of a project that has an initial cash outflow of...
What is the net present value of a project that has an initial cash outflow of $-11,400, at time 0, and the following cash flows for years 1-4? The required return is 10.0%. DO NOT USE DOLLAR SIGNS OR COMMAS IN YOUR ANSWER. ENTER YOUR ANSWER TO THE NEAREST DOLLAR (e.g. 1250). Year Cash Flows 1 $4,500 2 $4,350 3 $5,400 4 $7,250 Question 1 options: Answer Question 2 (1 point) A project has cash flows of -$163,500, $60,800, $62,300...
The NPV and payback period Suppose you are evaluating a project with the cash inflows shown...
The NPV and payback period Suppose you are evaluating a project with the cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. The project's annual cash flows are: Year Cash Flow Year 1 $400,000 Year 2 600,000 Year 3 500,000 Year 4 475,000 If the project’s desired rate...
When the present value of the cash inflows exceeds the initial cost of a project, then...
When the present value of the cash inflows exceeds the initial cost of a project, then the project should be Group of answer choices accepted because the internal rate of return is positive accepted because the profitability index is less than 1. accepted because the profitability index is negative. accepted because IRR is higher than the discount rate. rejected because the net present value is negative
Telesis Corp is considering a project that has the following cash flows: Year Cash Flow 0...
Telesis Corp is considering a project that has the following cash flows: Year Cash Flow 0 -$1,000 1 400 2 300 3 500 4 400 The company’s weighted average cost of capital (WACC) is 10%. What are the project’s payback period (Payback), internal rate of return (IRR), net present value (NPV), and profitability index (PI)? A. Payback = 3.5, IRR = 10.22%, NPV = $1260, PI=1.26 B. Payback = 2.6, IRR = 21.22%, NPV = $349, PI=1.35 C. Payback =...
Suppose you are evaluating a project with the cash inflows shown in the following table. Your...
Suppose you are evaluating a project with the cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. The project's annual cash flows are: Year Cash Flow Year 1 $375,000 Year 2 550,000 Year 3 400,000 Year 4 300,000 If the project’s desired rate of return is 9.00%, the...
17- Project L has a cost of ?$81,000. Its expected net cash inflows are ?$90,000 per...
17- Project L has a cost of ?$81,000. Its expected net cash inflows are ?$90,000 per year for 8 years. What is the? project's payback? period? If the cost of capital is 9?%, what are the? project's net present value? (NPV) ? and what is the profitability index? (PI)? What is the? project's internal rate of return? (IRR)?
7. The NPV and payback period Suppose you are evaluating a project with the cash inflows...
7. The NPV and payback period Suppose you are evaluating a project with the cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. The project's annual cash flows are: Year Cash Flow Year 1 $350,000 Year 2 600,000 Year 3 600,000 Year 4 450,000 If the project’s desired...
A project has the following total (or net) cash flows.                __________________________________________            &nbs
A project has the following total (or net) cash flows.                __________________________________________               Year          Total (or net) cash flow                _________________________________________ 1 $20,000 2 30,000 3 50,000 4 60,000 _________________________________________ The required rate of return on the project is 15 percent. The initial investment (or initial cost or initial outlay) of the project is $80,000. a) Find the net present value (NPV) of the project. b) Find the profitability index (PI) of the project. c) Calculate the modified internal rate...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT