Question

Fiat, a big European firm, is deciding among two mutually exclusive investments in Italy. The two projects have the following cash flows:

Project A Project B

Year Cash Flow Cash Flow

0 -€50,000 -€30,000

1 15,000 8,000

2 20,000 12,000

3 40,000 18,000

4 25,000 12,000

The company’s weighted average cost of capital is 10 percent (WACC = 10%). What is the net present value (NPV) of the project with the highest internal rate of return (IRR)?

Answer #1

Question 1
A company is deciding
among two mutually exclusive projects. Project A’s initial cost is
$40,000, and Project B’s initial cost is 30,000. The two projects
have the following cash flows:
Project
A
Project B
Year
Cash Flow Cash Flow
1
10,000
8,000
2
15,000
12,000
3
20,000
20,000
4
20,000
15,000
The company's weighted
average cost of capital is 11 percent. What is the net present
value (NPV) of the project A?...

You are analyzing the following two mutually exclusive projects
and have developed the following information. Please calculate the
IRRs for the two projects and the crossover rate. Which project
should you accept if the cost of capital is 5%, and which project
should you accept if the cost of capital is 10%?
Year Project A Cash Flow Project B
Cash Flow
0 -$84,500 -$76,900
1 $29,000 $25,000
2 $40,000 $35,000
3 $27,000 $26,000
IRR A: ___________
IRR B: ___________
Crossover...

All
techniques—Decision among
mutually exclusive investments???
Pound Industries is attempting to select the best of three
mutually exclusive projects. The initial investment and?after-tax
cash inflows associated with these projects are shown in the
following table.
Cash flows
Project A
Project B
Project C
Initial investment? (CF)
?$40,000
?$80,000
?$90,000
Cash
inflows? (CF),
tequals=1 to 5
?$15,000
?$26,500
?$27,500
a. Calculate the payback period for
each project.
b. Calculate the net present value?
(NPV) of each? project, assuming that the...

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

Q2) A firm has a WACC of 8.64% and is deciding between two
mutually exclusive projects. Project A has an initial investment of
$61.55. The additional cash flows for project A are: year 1 =
$19.98, year 2 = $38.47, year 3 = $61.67. Project B has an initial
investment of $72.32. The cash flows for project B are: year 1 =
$59.90, year 2 = $35.62, year 3 = $28.78. Calculate the
Following:
a) Payback Period for Project A:...

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...

You are considering the following two
mutually exclusive projects with the following cash flows:
Project
A
Project B
Year Cash
Flow
Year Cash Flow
0
-$75,000
0 -$70,000
1
$19,000
1 $10,000
2
$48,000
2 $16,000
3
$12,000
3 $72,000
Required rate of
return
10
%
13 %
Calculate the NPV, IRR,...

Consider the following two mutually exclusive projects:
Initial Net Cash Flow Per Year
Outlay 1 2 3 4
Project X $8,000 $4,400 $4,400 $4,400 $4,400
Project Y $8,000 $0 $15,000
Notice that Project X has a 4 year life span while Project Y has
only a 2 year life span.
A) Calculate the NPV, IRR, and EAA for each of these two
projects, assuming a 10% discount rate.
B) Use your calculations to clearly explain which
project should be undertaken.

You are deciding between two mutually exclusive investment
opportunities. Both require the same initial investment of $11.0
million. Investment A will generate $2.40 million per year
(starting at the end of the first year) in perpetuity. Investment B
will generate $1.70 million at the end of the first year, and its
revenues will grow at 3.2% per year for every year after that.
Which investment has the higher IRR ?
Which investment has the higher NPV when the cost of...

Bruin, Inc., has identified the following two mutually
exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$37,000
–$37,000
1
19,000
6,000
2
14,500
12,500
3
12,000
19,000
4
9,000
23,000
a. What is the IRR for Project A?
b. What is the IRR for Project B?
c. If the required return is 11 percent, what
is the NPV for Project A?
d. If...

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