Question

Capital Budgeting Analysis : A firm is planning a new project that is projected to yield...

Capital Budgeting Analysis :

A firm is planning a new project that is projected to yield cash flows of - $595,000 in Year 1, $586,000 per year in Years 2 through 5, and $578,000 in Years 6 through 11. This investment will cost the company $2,580,000 today (initial outlay). We assume that the firm's cost of capital is 11%.

(1) Draw a timeline to show the cash flows of the project.

(2) Compute the project’s payback period, net present value (NPV), profitability index (PI), internal rate of return (IRR), and modified internal rate of return (MIRR).

(3) Discuss whether the project should be taken.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

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
A firm is planning a new project that is projected to yield cash flows of -...
A firm is planning a new project that is projected to yield cash flows of - $595,000 in Year 1, $586,000 per year in Years 2 through 5, and $578,000 in Years 6 through 11. This investment will cost the company $2,580,000 today (initial outlay). We assume that the firm's cost of capital is 11%. 1. Compute the projects payback period, net present value (NPV), profitability index (PI), internal rate of return (IRR), and modified internal rate of return (MIRR)....
You are a financial analyst for the Brittle Company. The director of capital budgeting has asked...
You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below. Expected Net Cash Flows Year Project X Project Y 0 – $10,000 – $10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000...
You are considering a project with an initial cash outlay of $100,000 and expected free cash...
You are considering a project with an initial cash outlay of $100,000 and expected free cash flows of $23,000 at the end of each year for 6 years. The required rate of return for this project is 10 percent. a. What is the project’s payback period? b. What is the project’s discounted payback period? c. What is the project’s NPV ? d. What is the project’s PI ? e. What is the project’s IRR ? f. What is the project’s...
Belanger Construction is considering the following project. The project has an up-front cost and will also...
Belanger Construction is considering the following project. The project has an up-front cost and will also generate the following subsequent cash flows:             t = 1      $400             t = 2      500             t = 3      200 The project’s payback is 1.5 years, and it has a cost of capital of 10 percent. What is the project’s modified internal rate of return (MIRR)?
You are a financial analyst for Hittle Company. The director of capital budgeting has asked you...
You are a financial analyst for Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 10 percent. The payback cutoff period is 3 years. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X 0 ($10,000) 1 6,500 2 3,000 3 3,000 4 1,000 Project Y ($10,000)...
1. Under conditions of capital rationing (i.e., limited capital funds are available), the optimal allocation of...
1. Under conditions of capital rationing (i.e., limited capital funds are available), the optimal allocation of funds to capital investment projects occurs when management uses which one of the following decision models? a. Internal Rate of Return (IRR) b. Discounted accounting rate of return c. Profitability Index (PI) d. Discounted Payback (WRONG ANSWER) e. Modified Internal Rate of Return (MIRR). 2. The payback period for evaluating capital investment projects emphasizes: a. Average net income divided by average investment b. Average...
You are evaluating a capital budgeting project that costs $25,000 and is expected to generate cash...
You are evaluating a capital budgeting project that costs $25,000 and is expected to generate cash flows equal to $10,000 per year for four years. The required rate of return is 10 percent. Compute the project’s (a) net present value, (b) profitability index, and (c) internal rate of return. (d) Should the project be purchased?
Telesis Corp is considering a project that has the following cash flows: Year Cash Flow 0...
Telesis Corp is considering a project that has the following cash flows: Year Cash Flow 0 -$1,000 1 400 2 300 3 500 4 400 The company’s weighted average cost of capital (WACC) is 10%. What are the project’s payback period (Payback), internal rate of return (IRR), net present value (NPV), and profitability index (PI)? A. Payback = 3.5, IRR = 10.22%, NPV = $1260, PI=1.26 B. Payback = 2.6, IRR = 21.22%, NPV = $349, PI=1.35 C. Payback =...
. (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?
A project has the following total (or net) cash flows.                __________________________________________            &nbs
A project has the following total (or net) cash flows.                __________________________________________               Year          Total (or net) cash flow                _________________________________________ 1 $20,000 2 30,000 3 50,000 4 60,000 _________________________________________ The required rate of return on the project is 15 percent. The initial investment (or initial cost or initial outlay) of the project is $80,000. a) Find the net present value (NPV) of the project. b) Find the profitability index (PI) of the project. c) Calculate the modified internal rate...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT