Question

A firm with a cost of capital of 10% is evaluating two independent projects utilizing the internal rate of return technique. Project X has an initial investment of $70,000 and cash inflows at the end of each of the next five years of $25,000. Project Z has an initial investment of $120,000 and cash inflows at the end of each of the next four years of $35,000. The firm should ________.

accept Project X and reject project Z |
||

accept both the projects because they have equal IRR |
||

accept Project Z because its IRR is higher than Project X |
||

reject both the projects because they have negative IRR |

Answer #1

A firm with a 14% WACC is evaluating two projects for this
year's capital budget. After-tax cash flows, including
depreciation, are as follows:
0
1
2
3
4
5
Project M
-$9,000
$3,000
$3,000
$3,000
$3,000
$3,000
Project N
-$27,000
$8,400
$8,400
$8,400
$8,400
$8,400
Calculate NPV for each project. Do not round intermediate
calculations. Round your answers to the nearest cent.
Project M: $
Project N: $
Calculate IRR for each project. Do not round intermediate
calculations. Round your answers to...

CAPITAL BUDGETING CRITERIA
A firm with a 14% WACC is evaluating two projects for this
year's capital budget. After-tax cash flows, including
depreciation, are as follows:
0
1
2
3
4
5
Project M
-$18,000
$6,000
$6,000
$6,000
$6,000
$6,000
Project N
-$54,000
$16,800
$16,800
$16,800
$16,800
$16,800
Calculate NPV for each project. Round your answers to the
nearest cent. Do not round your intermediate calculations.
Project M $
Project N $
Calculate IRR for each project. Round your answers to two...

CAPITAL BUDGETING CRITERIA
A firm with a 13% WACC is evaluating two projects for this
year's capital budget. After-tax cash flows, including
depreciation, are as follows:
0
1
2
3
4
5
Project M
-$27,000
$9,000
$9,000
$9,000
$9,000
$9,000
Project N
-$81,000
$25,200
$25,200
$25,200
$25,200
$25,200
Calculate NPV for each project. Round your answers to the
nearest cent. Do not round your intermediate calculations.
Project M $
Project N $
Calculate IRR for each project. Round your answers to two...

You are considering two independent projects. The required rate
of return is 13.75 percent for Project A and 14.25 percent for
Project B. Project A has an initial cost of $51,400 and cash
inflows of $21,400, $24,900, and $22,200 for Years 1 to 3,
respectively. Project B has an initial cost of $38,300 and cash
inflows of $18,000 a year for 3 years. Which project(s), if any,
should you accept?
A.
Reject both Projects.
B.
Accept both projects.
C.
Accept...

Ace Inc. is evaluating two mutually exclusive projects—Project A
and Project B. The initial cash outflow is $50,000 for each
project. Project A results in cash inflows of $15,625 at the end of
each of the next five years. Project B results in one cash inflow
of $99,500 at the end of the fifth year. The required rate of
return of Ace Inc. is 10 percent. Ace Inc. should invest in:
a. Project B because it has no cash inflows...

The large furniture retailer "Sofa So Good" is evaluating two
mutually exclusive projects: NPV versus IRR. Consider the following
projects where the firms may only choose one not both:
The firm's cost of capital/required return equals
9%.
NOTE: The firm's cost of capital K, acts as a
hurdle rate, and is based on the costs involved in financing other
firm projects. The Cost of capital allows us to decide to
accept or reject an investment, using IRR, which additionally
allows...

Ace Inc. is evaluating two mutually exclusive projects—Project A
and Project B. The initial cash outflow is $50,000 for each
project. Project A results in cash inflows of $15,625 at the end of
each of the next five years. Project B results in one cash inflow
of $99,500 at the end of the fifth year. The required rate of
return of Ace Inc. is 10 percent. Ace Inc. should invest in:
a.Project B because it has no cash inflows in...

IRR: Mutually exclusive projects Ocean Pacific Restaurant is
evaluating two mutually exclusive projects for expanding the
restaurant's seating capacity. The relevant cash
flows for the projects are shown in the following table. The firm's
cost of capital is 4%.
Project X
Project Y
Initial Investment (CF)
980,000
363,000
Year
Cash inflows (CF)
1
150,000
110,000
2
170,000
98,000
3
220,000
93,000
4
270,000
82,000
5
340,000
67,000
a. calculate the IRR to the nearest whole percent for each of...

Questions 13-16 refer to the following information.
There are two independent investment projects for the
Galactic Empire. Project A (build TIE Fighters) costs the Empire
$300,000 to set up, and it will provide annual cash inflows of
$70,000 for 7 years. Project B (build Death Star) costs the Empire
$1,000,000 to set up, and it will provide annual cash inflows of
$255,000 for 6 years. The Empire’s cost of capital (i.e., the
required return on investment) is 10% annually, and...

A firm is evaluating two projects for this year’s capital
budget. Its WACC is 14%. Project A costs $5,500 and its expected
cash inflows would be $2,000 per year for 5 years. Project B costs
$18,800 and its expected cash inflows would be $5,600 per year for
5 years. If the projects were mutually exclusive, which one would
you recommend? If the projects were independent, which one(s) would
you recommend? Explain.

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