6 questions

Buy Coastal, Inc., imposes a payback cutoff of three years for its international investment projects.

Year

Cash Flow

(A)

Cash Flow (B)

0

–$

6

4

,000

74,000

1

25,000

17,000

32,000

20,000

23,000

30,000

10,000

234,000

What is the payback period for both projects? (Round your answers to 2 decimal places. (e.g., 32.16))

Payback period

  Project A

years  

  Project B

Which project should the company accept?

Project A

Project B

An investment project has annual cash inflows of $3,600, $4,500, $5,700, and $4,900, and a discount rate of 15 percent.

What is the discounted payback period for these cash flows if the initial cost is $6,300? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  Discounted payback period

What is the discounted payback period for these cash flows if the initial cost is $8,400? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the discounted payback period for these cash flows if the initial cost is $11,400? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12.9 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,944,300, $1,997,600, $1,966,000, and $1,419,500 over these four years, what is the project’s average accounting return (AAR)? (Round your answer to 2 decimal places. (e.g., 32.16))

  Average accounting return

%  

A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:

28,900

12,900

15,900

11,900

If the required return is 14 percent, what is the IRR for this project? (Round your answer to 2 decimal places. (e.g., 32.16))

  IRR

% 

Should the firm accept the following project?

No

Yes

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:

28,600

12,600

15,600

11,600

What is the NPV for the project if the required return is 11 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  NPV

$  

At a required return of 11 percent, should the firm accept this project?

What is the NPV for the project if the required return is 25 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

At a required return of 25 percent, should the firm accept this project?

Yes

No

18,100

10,400

9,300

5,800

What is the profitability index for the set of cash flows if the relevant discount rate is 11 percent? (Do not round intermediate calculations and round your final answer to 3 decimal places. (e.g., 32.161))

  Profitability index

What is the profitability index for the set of cash flows if the relevant discount rate is 16 percent? (Do not round intermediate calculations and round your final answer to 3 decimal places. (e.g., 32.161))

What is the profitability index for the set of cash flows if the relevant discount rate is 23 percent? (Do not round intermediate calculations and round your final answer to 3 decimal places. (e.g., 32.161))