Question

Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow is $50,000 for each project. Project A results in cash inflows of $15,625 at the end of each of the next five years. Project B results in one cash inflow of $99,500 at the end of the fifth year. The required rate of return of Ace Inc. is 10 percent. Ace Inc. should invest in:

a. Project B because it has no cash inflows in the first four years of its life.

b. Project A because it has a positive net present value (NPV).

c. Project B because it has a higher net present value (NPV).

d. Project A because it will generate cash in the initial years of its life.

e. Project A because it will yield cash every year for five years.

Answer #1

Net Present Value = Present Value of Cash Inflows -Present Value of Cash Outflows

Project A:

Net Present Value =[15625*1/(1.10)^1+15625*1/(1.10)^2+15625*1/(1.10)^3+15625*1/(1.10)^4+15625*1/(1.10)^5]-50,000

= $ 9231.04

Project B:

Net Present Value= [99500*1/(1.10)^5]-50,000

= $ 11,781.67

Since the projects are mutually exclusive, only one project could be chosen. The project with the higher Net Present value would be selected as it would be more beneficial .

Since Project B has a higher Net Present value, it would be chosen

**Answer : c. Project B because it has a higher net
present value (NPV).**

Two mutually exclusive projects have an initial cost of $60,000
each. Project A produces cash inflows of $30,000, $37,000, and
$20,000 for Years 1 through 3, respectively. Project B produces
cash inflows of $80,000 in Year 2 only. The required rate of return
is 10 percent for Project A and 11 percent for Project B. Which
project(s) should be accepted and why?
Project A, because it has the higher required rate of
return.
Project A, because it has the larger...

Two projects being considered are mutually exclusive and have
the following cash flows:
Year
Project A
Project B
0
−$50,000
−$50,000
1
15,625
0
2
15,625
0
3
15,625
0
4
15,625
0
5
1,562
89,500
If the required rate of return on these projects is 13 percent,
which would be chosen and why?
a.
Project B because of higher NPV.
b.
Project B because of higher IRR.
c.
Project A because of higher NPV.
d.
Project A because of...

Two projects being considered are mutually exclusive and have
the following cash flows:
Year
Project A
Project B
0
−$50,000
−$50,000
1
15,625
0
2
15,625
0
3
15,625
0
4
15,625
0
5
1,562
89,500
If the required rate of return on these projects is 13 percent,
which would be chosen and why?
a.
Project B because of higher NPV.
b.
Project B because of higher IRR.
c.
Project A because of higher NPV.
d.
Project A because of...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%: Project...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%:
A....

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $10000. Its projected net
cash flows are $800, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$14000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. The
firm’s cost of capital is 6.00%. Choose the...

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...

Project X and Project Y are two mutually exclusive projects.
Project X requires an initial outlay of $38,000 and generates a net
cash flow of $14,000 per year for six years. Project Y requires an
initial outlay of $52,000, and will generate cash flows of $15,300
per year for eight years. Which project should be chosen and why?
(Assume that the discount rate for both projects is 10
percent).
A. Project X because Project X has
a larger NPV than Project...

Two mutually exclusive projects have an initial cost of $12,000.
Project A produces cash inflows of $10,200, $8,700, and $3,500 for
years 1 through 3 respectively. Project B produces cash inflows of
$6,700, $3,500, and $12,600 for years 1 through 3 respectively. The
required rate is 10 percent. which project would you choose to
invest in and why?

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%:
The...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 6 minutes ago

asked 6 minutes ago

asked 8 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 15 minutes ago

asked 15 minutes ago

asked 15 minutes ago

asked 15 minutes ago