Question

Company X want to Invest to project A, B or C (the company can only invest...

Company X want to Invest to project A, B or C (the company can only invest in one project (A, B or C) or the company can choose not invest to any project (DN (do nothing)). Based on the incremental analysis rates of return shown below, what alternative should company X choose (MARR = 10%)?

Comparison

IRR

A - DN

-3%

B - DN

-2%

C - DN

8%

B - A

12%

C - B

15%

C - A

10%
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The incremental IRR is calculated as the difference between cash flows of two mutually exclusive alternatives.

Now comparing the projects:

A Vs DN= -3% which is less than MARR, Project A should be rejected and DN should be selected

B Vs DN= -2% which is less than MARR, Project B should be rejected and DN should be selected

C Vs DN= 8% which is less than MARR, project C should be rejected and DN should be selected

Hence, all three projects should be rejected and company should choose not to invest in any project.

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
Initial investment A = $1,000, Initial investment B = $2,000, and Initial investment C = $3,000....
Initial investment A = $1,000, Initial investment B = $2,000, and Initial investment C = $3,000. DN= Do nothing. If the alternatives are mutually exclusive and the MARR is 12% per year, which alternative(s) should be selected? Comparison i*, % Δi*, % A to DN 20 - B to DN 10 - C to DN 15 - B vs A - -10 C vs A - 15 C vs B - 85 Alternative C Alternative A Alternative DN Alternative B
A company has the option to invest in project A, project B, or neither (Assume the...
A company has the option to invest in project A, project B, or neither (Assume the projects are mutually exclusive and the company has no other investment options, meaning the company can only invest in one of the two projects or nothing at all). Project A requires an initial investment of $120,000 today and provides cash flows of $35,000 a year for five years. The project will also return back $20,000 in capital in year six. Project B requires a...
2. The following information (incremental rates of return ) on four mutually exlusive projects is provided...
2. The following information (incremental rates of return ) on four mutually exlusive projects is provided below: IRR (B - A) 85% IRR (D - C) 25% IRR (C - B) 30% Assuming all projects have the same life, which project would you choose based on the IRR criteria at MARR of 29%? Provide some reasoning behind your conclusion.
You have to decide between projects A and project B. No project is not an option....
You have to decide between projects A and project B. No project is not an option. The cash flows are as follows: Project A: t=0: -9000; t=1: -2200; t=2: 4000; t=3: 2057 Project B: t=0: -8000; t=1: -4480; t=2: 4000; t=3: 3644 Find the IRR of the incremental project. MARR=15%. Choose the best answer. a) 7% b) 8% c) 9% d) 22% e) 23% f) 24%
Either of the cost alternatives shown below can be used in a chemical refining process. If...
Either of the cost alternatives shown below can be used in a chemical refining process. If the company’s MARR is 15% per year, determine which should be selected on the basis of an incremental ROR analysis. A B First cost ,$ − 40,000 − 61,000 Annual cost, $/year − 25,000 − 19,000 Salvage value, $ 8,000 11,000 Life, years 5 5 5       -       A.       B.       C.       D.       E....
Peter is risk-neutral. He can invest an amount of $x into a project. The project is...
Peter is risk-neutral. He can invest an amount of $x into a project. The project is successful with probability \sqrt{x/1600}, where x is the number of dollars Peter has invested. If successful, the project pays Peter $3200, otherwise nothing. The project takes place in a country on the verge of civil war. Peter thinks there is a 10% chance that a civil war will break out so that Peter will be unable to claim any payments of a successful project,...
Due to a restricted budget, a company can only undertake one of the following projects: Project...
Due to a restricted budget, a company can only undertake one of the following projects: Project X: This project has an initial investment of $900,000 and annual profits of $425,000 in year 1, $425,000 in year 2 and $350,000 in year 3. Project Y: This project has an initial investment of $900,000 and a profit of $1,000,000 in year 3. a. Calculate the IRR for Project X. % b. Calculate the IRR for Project Y. % c. Which project should...
A company has the option to invest in project A, project B, or neither (the projects...
A company has the option to invest in project A, project B, or neither (the projects are mutually exclusive and the company has no other investment options). Project A requires an initial investment of $100,000 today and provides cash flows of $35,000 a year for five years. The project will also return back $20,000 in capital in year six. Project B requires a $135,000 investment today and will have cash flows of $40,000 a year for 5 years. The firm’s...
Giasgow company nas tne foiiowing Tinanciai data for project X (3-year project): Year Year 1 Year...
Giasgow company nas tne foiiowing Tinanciai data for project X (3-year project): Year Year 1 Year 2 Year 3 CF -10,000 5,000 4,000 4,000 The company's capital structure is distributed equally between debt, preferred stock and common stock. It has also the following information: 1- After tax cost of debt: 5.8%. Tax rate: 40% 2- Preferred stocks are selling at $65 per share and pay a dividend of $8 per share 3- Common stocks are selling at $40 per share,...
. (NPV,IRR)A company can invest $1,600,000 in a capital budgeting project that will generate the following...
. (NPV,IRR)A company can invest $1,600,000 in a capital budgeting project that will generate the following forecasted cash flows: Year Cash flow 1 $500,000 2 720,000 3 300,000 4 600,000 The company has a 13% cost of capital. a. Calculate the project’s net present value. b. Calculate the project’s internal rate of return. c. Should the firm accept or reject the project? d. What is the value added to the firm if it accepts this proposed investment?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT