Question

Shell Camping Gear, Inc., is considering two mutually
exclusive projects. Each requires an initial investment of
$140,000. John Shell, president of the company, has set a
maximum payback period of 4 years. The after-tax cash inflows
associated with each project are shown in the following
table:

1 20,000 50,000

2 30,000 40,000

3 40,000 30,000

4 50,000 20,000

5 30,000 30,000

a. Determine the payback period of each project.

b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in?

Answer #1

Payback Period of First Project = 1(20,000) + 1(30,000) + 1(40,000) + 1(50,000)

Payback Period of First Project = 4 years

Payback Period of Second Project = 1(50,000) + 1(40,000) + 1(30,000) + 1(20,000)

Payback Period of Second Project = 4 years

b.

Shell shoud choose second Project as in this, higher cash flows are earlier in the project life, so NPV will be higher for this project, else cash flows of both projects are equal and payback period is also equal

P10-21 (similar to)
All techniques, conflicting rankings Nicholson Roofing
Materials, Inc., is considering two mutually exclusive projects,
each with an initial investment of
$100,000.
The company's board of directors has set a 4-year payback
requirement and has set its cost of capital at
9%.
The cash inflows associated with the two projects are shown in
the following table:
LOADING...
.
a. Calculate the payback period for each project. Rank the
projects by payback period.
b. Calculate the NPV of each...

Suppose your firm is considering two mutually exclusive,
required projects with the cash flows shown as follows. The
required rate of return on projects of both of their risk class is
8 percent, and the maximum allowable payback and discounted payback
statistic for the projects are two and three years,
respectively.
Time
0
1
2
3
Project A Cashflow
-20,000
10,000
30,000
1,000
Project B Cashflow
-30,000
10,000
20,000
50,000
Calculate the NPV and use the NPV decision rule to...

A firm is considering the two mutually exclusive investments
projects. Project Alpha requires an initial outlay of $600 and will
return $160 per year for the next seven years; Project Beta
requires an initial outlay of $1,100 and will return $350 per year
for the next five years. Assuming a 11% required return, calculate
the NPV, Payback Period, and MIRR of each project.
Please help by showing Excel calculations. Thanks!

Suppose your firm is considering two mutually exclusive,
required projects with the cash flows shown below. The required
rate of return on projects of both of their risk class is 8
percent, and that the maximum allowable payback and discounted
payback statistic for the projects are 2 and 3 years,
respectively.
Time:
0
1
2
3
Project A Cash Flow
-30,000
20,000
40,000
11,000
Project B Cash Flow
-40,000
20,000
30,000
60,000
Use the NPV decision rule to evaluate these...

DEF, Inc. is considering the following two mutually exclusive
projects with similar risks
Year
Project A
Project B
0
– $60,000
– $60,000
1
20,500
18,200
2
15,600
24,400
3
24,400
15,600
4
18,200
20,500
(c) Calculate the payback periods. The target payback period is
2 years. Which project will you choose if you apply the payback
period rule?

1.
Suppose your firm is considering two mutually exclusive, required
projects with the cash flows shown as follows. The required rate of
return on projects of both of their risk class is 8 percent, and
the maximum allowable payback and discounted payback statistic for
the projects are two and three years, respectively.
Time
0
1
2
3
Project A Cash Flow
?20,000
10,000
30,000
1,000
Project B Cash Flow
?30,000
10,000
20,000
50,000
Use the MIRR decision rule to evaluate...

Haley’s Crockett Designs Inc. is considering two mutually
exclusive projects. Both projects require an initial investment of
$11,000 and are typical average-risk projects for the firm. Project
A has an expected life of 2 years with after-tax cash inflows of
$8,000 and $10,000 at the end of Years 1 and 2, respectively.
Project B has an expected life of 4 years with after-tax cash
inflows of $8,000 at the end of each of the next 4 years. The
firm’s WACC...

Carlyle Inc. is considering two mutually exclusive projects.
Both require an initial investment of $15,000 at t = 0. Project S
has an expected life of 2 years with after-tax cash inflows of
$7,000 and $12,000 at the end of Years 1 and 2, respectively.
Project L has an expected life of 4 years with after-tax cash
inflows of $5,200 at the end of each of the next 4 years. Each
project has a WACC of 9.00%, and neither can...

Konyvkiado Inc. is considering two mutually exclusive projects.
Both require an initial investment of $15,000 at t = 0. Project S
has an expected life of 2 years with after-tax cash inflows of
$7,000 and $12,000 at the end of Years 1 and 2, respectively. In
addition, Project S can be repeated at the end of Year 2 with no
changes in its cash flows. Project L has an expected life of 4
years and a cash-flow of $5200/year. Each...

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 20 minutes ago

asked 29 minutes ago

asked 44 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago