Question

The purpose of Economic Life Analysis is to:

Determine the optimal investment life of a project |
||

Determine the optimal cost of capital for a project |
||

Evaluate two mutually exclusive projects for their crossover rate |
||

Determine the optimal capital budget of a project |
||

None of the above |

Answer #1

A company is considering the following investment opportunities:
Project A Initial cost = $5,500,000 Expected life = 10 yrs NPV =
$340,000 IRR = 20%
Project B Initial cost = $3,000,000 Expected life = 10 yrs NPV =
$300,000 IRR = 30%
Project C Initial cost = $2,000,000 Expected life = 10 yrs NPV =
$200,000 IRR = 40%
If the company has a WACC of 15% and the company is using
capital rationing with a fixed capital budget of...

The two projects are as follows. Discount rate = 10%.
Project
X Project Y
Year Cash-Flow
Cash-Flow
0
-$100,000 -$100,000
1
50,000 10,000
2
40,000 30,000
3 30,000 40,000
4.
10,000
60,000
Calculate the payback period of project X
1.33 years
2.33 years
3.33 years
4.33 years
Calculate the crossover rate.
6.93%
6.58%
10.00%
7.17%
Imagine that discount is 5%, and the two projects are mutually
exclusive, which project shall you choose?...

The managers of Kenforest Grocers are trying to determine the
company's optimal capital budget for the upcoming year. Kenforest
is considering the following projects:
(a) No budget limitation
(b) limit to $230 million
Project
Required investment (in millions)
Risk-adjusted WACC
NPV (in millions)
Profitability Index
Ranking
Available Capital
Ranking
A
$200
$50
B
70
45
C
150
40
D
30
30
E
120
20
F
100
5
G
50
-1
H
10
-5
Which of the projects will the company...

Your division is considering two investment projects, each of
which requires an up-front expenditure of $22 million. You estimate
that the cost of capital is 11% and that the investments will
produce the following after-tax cash flows (in millions of
dollars):
Year
Project A
Project B
1
5
20
2
10
10
3
15
8
4
20
6
If the two projects are mutually exclusive and the cost of
capital is 15%, which project should the firm undertake?
The firm...

Your division is considering two investment projects, each of
which requires an up-front expenditure of $27 million. You estimate
that the cost of capital is 10% and that the investments will
produce the following after-tax cash flows (in millions of
dollars):
Year
Project A
Project B
1
5
20
2
10
10
3
15
8
4
20
6
What is the regular payback period for each of the projects?
Round your answers to two decimal places.
Project A: years
Project B: years...

13. NPV and IRR Analysis
Cummings Products Company is considering two mutually exclusive
investments whose expected net cash flows are as follows:
Expected Net Cash Flows
Year
Project A
Project B
0
-$400
-$650
1
-528
210
2
-219
210
3
-150
210
4
1,100
210
5
820
210
6
990
210
7
-325
210
Select the correct graph for NPV profiles for Projects A and
B.
The correct graph is (select one) graph __?
What is each project's...

Projects T and Q are mutually-exclusive investment
alternatives, Each project requires a net investment of $20,000,
followed by a series of positive net cash flows. Both projects have
a useful life equal to 10 years. Project T has an NPV of $36,000 at
a 0% discount rate, while project Q has an NPV of $30,000 at 0%.
Furthermore, at a discount rate of 15 percent, the two projects
have identical positive NPVs. Given this, which of the following
statements is...

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...

A firm needs to decide between two mutually exclusive projects.
Project Alpha requires an initial investment of $37,000 today and
is expected to generate cash flows of $31,000 for the next 4 years.
Project Beta requires an initial investment of $92,000 and is
expected to generate cash flows of $36,400 for the next 8 years.
The cost of capital is 10%. The projects can be repeated with no
change in cash flows. What is the NPV of the project that...

A firm needs to decide between two mutually exclusive projects.
Project Alpha requires an initial investment of 50,000 today and is
expected to generate cash flows of 51,000 for the next 3 years.
Project Beta requires an intial investment of 85,000 and is
expected to generate cash flows of 49,700 for the next 6 years. The
cost of capital is 6%. The projects can be repeated with no charge
in cash flows. What is the NPV of the project that...

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