Question

You are analyzing a project and have prepared the following
data:

Year Cash flows

0 -$275,000

1 $ 50,000

2 $ 75,000

3 $ 95,000

4 $ 15,000

Required payback period 3 years

Required rate of return 5%

You are required to:

a) Determine the project’s Profitability Index, Internal Rate of
Return, NPV and Discounted Payback

Period

b) Decide whether to accept the project based on the above
investment decision criteria?

Answer #1

Year Project A Expected Cash Flows ($) 0 (1,250,000) 1 75,000 2
218,750 3 535,000 4 775,000 5 775,000 Year Project B Expected Cash
Flows ($) 0 (1,050,000) 1 650,000 2 500,000 3 226,250 4 137,500 5
62,500 Metrics Payback Period (in years) (A)3.54 (B)1.8 Discounted
payback period (in years) (A)4.58 (B)2.72 Net Present Value (NPV)
(A)$160,816 (B)$151,742 Internal Rate of Return (A)18.90% (B)23.84%
Profitability Index (A)1.13 (B)1.14 Modified Internal Rate of
Return (MIRR) (A)17.82% (B)18.15% a). Which of the...

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 your firm is considering investing in a project with the
accompanying cash flows, that the required rate of return on
projects of this risk class is 11 percent, and that the maximum
allowable payback and discounted payback statistics for your
company are 4 and 4.5 years, respectively. Time Year 0 Year 1 Year
2 Year 3 Year 4 Year 5 Cash Flow -$125,000 -$75,650 $75,000 $49,000
$115,000 $81,850 What is the Profitability Index? Would you accept
or reject the...

A project has cash flows of −$144,000, $60,800, $62,300 and
$75,000 for Years 0 to 3, respectively. The required rate of return
is 13 percent. What is the profitability index? Should you accept
or reject the project based on this index value?

Consider the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$40,000
–$180,000
1
25,000
15,000
2
22,000
45,000
3
20,000
50,000
4
15,000
275,000
The required return on these investments is 11 percent.
Required:
(a)
What is the payback period for each project?
(Do not round intermediate
calculations. Round your answers to 2 decimal
places (e.g., 32.16).)
Payback period
Project A
years
Project B
years ...

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,...

Assume we will accept the project if it pays back within two
years.
◦Year 0: -155,000
◦Year 1: 111,880
◦Year 2: 131,080
Your required return for assets of this risk is 10%.
Use NPV, Payback period and discounted payback period to decide
if we accept or reject the project?

You are considering a project with an initial cash outlay of
$100,000 and expected free cash flows of $23,000 at the end of each
year for 6 years. The required rate of return for this project is
10 percent.
a. What is the project’s payback period?
b. What is the project’s discounted payback period?
c. What is the project’s NPV ?
d. What is the project’s PI ?
e. What is the project’s IRR ?
f. What is the project’s...

Fernando Designs is considering a project that has the
following cash flows and WACC data. What is the project's
discounted payback period? (10 points) What is the project’s
modified internal rate of return?
WACC: 10.00%
Year
0
1
2
3
Cash
flows
-$900
$500
$500 $500

Kerin Enterprises has a project which has the following cash
flows:
YEAR CASH FLOWS
0-( -R200 000)
1- 50 000
2- 100 000
3- 150 000
4- 40 000
The required rate of return is 10%. What is the project’s
discounted payback period (DPB)? Hint: Use rounded numbers, i.e. no
decimal points.

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