Question

Two projects being considered by a firm are mutually exclusive and have the following projected cash flows:

Year Project A Project B

Cash Flow Cash flow

0 (2000) (2000)

1 0 832

2 0 832

3 0 832

4 3877 832

Based **only** on the information given,
**which of the projects would be preferred and
why?**

Mark the correct answer but justify your answer showing your computations.

a.Project A, because it has a shorter payback period

b.Project B, because it has a higher IRR

c.Indifferent , because the projects have equal IRRs

d.Include both in the capital budget, since the sum of the cash inflows exceeds the initial investment in both cases.

e.Choose neither, since their NPVs are negative.

Answer #1

IRR of A=IRR({-2000;0;0;0;3877})=18.00%

IRR of B=IRR({-2000;832;832;832;832})=24.01%

b.Project B, because it has a higher IRR

e.Choose neither, since their NPVs are negative. [For this
option we need the discount rate..If the discount rate is not
given, Choose Option B otherwise if the discount rate is given and
you forgot to provide the rate, substitute the discount rate in r
below and see whether NPV of both are negative. If this is correct,
then choose Option E]

NPV of A=-2000+3877/(1+r)^4

NPV of B=-2000+832/r*(1-1/(1+r)^4)

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budgeting projects that have the following characteristics:
Cash Flows
Year
Project Q
Project R
0
$(4,000)
$(4,000)
1
0
3,500
2
5,000
2,100
IRR
11.8%
28.40%
If the firm's required rate of return (r) is 10 percent, which
project should be purchased?
a.
Both projects should be purchased, because the IRRs for both
projects exceed the firm's required rate of return.
b.
Neither project should be accepted, because their NPVs are too
small...

Tara is evaluating two mutually exclusive capital
budgeting projects that have the following characteristics:
Cash Flows
Year
Project Q
Project R
0
$(4,000)
$(4,000)
1
0
3,500
2
5,000
2,100
IRR
11.8%
28.40%
If the firm's required rate of return (r) is 10 percent, which
project should be purchased?
a.
Both projects should be purchased, because the IRRs for both
projects exceed the firm's required rate of return.
b.
Neither project should be accepted, because their NPVs are too
small...

Two projects being considered are mutually exclusive and have
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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.
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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...

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year
Project A
Project B
0
-5000
-1000
1
2500
600
2
2500
600
3
2500
600
1) Which project should be accepted, if any and
why?
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B: Neither project should be accepted, they both have negative
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Project S costs $15,000 and its expected cash flows would be
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years. If both projects have a WACC of 16%, which project would you
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Select the correct answer.
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b. Both Projects S and L, since
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Project S costs $17,000 and its expected cash flows would be
$4,500 per year for 5 years. Mutually exclusive Project L costs
$28,500 and its expected cash flows would be $11,250 per year for 5
years. If both projects have a WACC of 15%, which project would you
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Select the correct answer.
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Select the correct answer.
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Select the correct answer.
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repeatable. What should you do?
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