Question

A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...

A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$450 $40 $40 $40 $175 $175 Project 2 -$650 $350 $350 $40 $40 $40 Which project would you recommend? Select the correct answer. a. Both Projects 1 and 2, since both projects have NPV's > 0. b. Project 2, since the NPV2 > NPV1. c. Both Projects 1 and 2, since both projects have IRR's > 0. d. Project 1, since the NPV1 > NPV2.

Homework Answers

Answer #1

1:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=40/1.1+40/1.1^2+40/1.1^3+175/1.1^4+175/1.1^5

=$327.66

NPV=Present value of inflows-Present value of outflows

=$327.66-$450

=($122.34)(Approx)(Negative).

2:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=350/1.1+350/1.1^2+40/1.1^3+40/1.1^4+40/1.1^5

=$689.65

NPV=Present value of inflows-Present value of outflows

=$689.65-$650

=$39.65(Approx).

Hence project 2 must be selected having higher and positive NPV.(Option B)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Dudley firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
Dudley firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$400 $55 $55 $55 $175 $175 Project 2 -$450 $350 $350 $105 $105 $105 Which project would you recommend? Select the correct answer. a. Project 1, since the NPV1 > NPV2. b. Neither Project 1 nor 2, since each project's NPV < 0. c. Project 2, since the NPV2 > NPV1. d. Both Projects 1 and 2, since...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$450 $40 $40 $40 $190 $190 Project 2 -$500 $250 $250 $150 $150 $150 Which project would you recommend? Select the correct answer. a. Neither Project 1 nor 2, since each project's NPV < 0. b. Project 2, since the NPV2 > NPV1. c. Both Projects 1 and 2, since both projects have IRR's > 0. d. Both...
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS A firm with a WACC of 10% is considering the...
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$350 $40 $40 $40 $215 $215 Project 2 -$650 $200 $200 $70 $70 $70 Which project would you recommend? Select the correct answer. a. Project 1, since the NPV1 > NPV2. b. Both Projects 1 and 2, since both projects have IRR's > 0. c. Project 2, since the NPV2 > NPV1....
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS A firm with a WACC of 10% is considering the...
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$250 $50 $50 $50 $175 $175 Project 2 -$700 $350 $350 $80 $80 $80 Which project would you recommend? Select the correct answer. a. Project 2, since the NPV2 > NPV1. b. Project 1, since the NPV1 > NPV2. c. Both Projects 1 and 2, since both projects have NPV's > 0....
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$300 $45 $45 $45 $200 $200 Project 2 -$650 $250 $250 $45 $45 $45 Which project would you recommend? Select the correct answer. a. Neither Project 1 nor 2, since each project's NPV < 0. b. Both Projects 1 and 2, since both projects have NPV's > 0. c. Both Projects 1 and 2, since both projects have...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$350 $55 $55 $55 $165 $165 Project 2 -$600 $250 $250 $60 $60 $60 Which project would you recommend? Select the correct answer. a. Project 2, since the NPV2 > NPV1. b. Both Projects 1 and 2, since both projects have NPV's > 0. c. Neither Project 1 nor 2, since each project's NPV < 0. d. Project...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$300 $40 $40 $40 $165 $165 Project 2 -$400 $200 $200 $60 $60 $60 Which project would you recommend? Select the correct answer. a. Project 1, since the NPV1 > NPV2. b. Neither Project 1 nor 2, since each project's NPV < 0. c. Both Projects 1 and 2, since both projects have IRR's > 0. d. Project...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$250 $40 $40 $40 $210 $210 Project 2 -$500 $250 $250 $145 $145 $145 Which project would you recommend? Select the correct answer. a. Both Projects 1 and 2, since both projects have NPV's > 0. b. Project 2, since the NPV2 > NPV1. c. Both Projects 1 and 2, since both projects have IRR's > 0. d....
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1...
A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$500 $70 $70 $70 $235 $235 Project 2 -$400 $250 $250 $140 $140 $140 Which project would you recommend? Select the correct answer. a. Project 2, since the NPV2 > NPV1. b. Neither Project 1 nor 2, since each project's NPV < 0. c. Project 1, since the NPV1 > NPV2. d. Both Projects 1 and 2, since...
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS A firm with a WACC of 10% is considering the...
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$500 $45 $45 $45 $160 $160 Project 2 -$450 $300 $300 $60 $60 $60 Which project would you recommend? Select the correct answer. a. Both Projects 1 and 2, since both projects have NPV's > 0. b. Project 1, since the NPV1 > NPV2. c. Both Projects 1 and 2, since both...