1 . A project that provides annual cash flows of $1,9 3 0 for 8 years costs $7,700 today. |
Requirement 1: |
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At a required return of 8 percent, what is the NPV of the project?
(Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
NPV |
$ |
Requirement 2: |
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At a required return of 2 4 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) |
NPV
$
Requirement 3: |
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At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
Discount rate |
% |
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2. Romboski, LLC, has identified the following two mutually exclusive projects: |
Year |
Cash Flow (A) |
Cash Flow (B) |
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0 |
−$ |
65,000 |
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1 |
34,000 |
19,000 |
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2 |
27,000 |
25,000 |
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3 |
21,000 |
29,000 |
|||||||||||||||||||||||||||||||||||||||||||||
4 |
17,000 |
(a) |
What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
Internal rate of return |
|||
Project A |
%
|
||
Project B |
% |
(b) |
If you apply the IRR decision rule, which project should the company accept? |
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Assume the required return is 11 percent. What is the NPV for each of these projects? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) |
Net present value |
|
$ |
|
Which project will you choose if you apply the NPV decision rule? |
Over what range of discount rates would you choose Project A? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
@ % |
Over what range of discount rates would you choose Project B? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g.,32.16).) |
(c) |
At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
3. Kerron Company is presented with the following two mutually exclusive projects. The required return for both projects is 15 percent. |
Project M |
Project N |
–$125,000 |
–$310,000 |
57,000 |
135,000 |
64,000 |
161,000 |
59,000 |
129,000 |
34,000 |
92,000 |
Required: |
|
What is the IRR for each project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
IRR |
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Project M |
|||
Project N |
What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) |
NPV |
|||
$ | |||
Which, if either, of the projects should the company accept? |
4. The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is “looking up.” As a result, the cemetery project will provide a net cash inflow of $109,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5.1 percent per year forever. The project requires an initial investment of $1,425,000. |
If Yurdone requires a return of 12 percent on such undertakings, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) |
Should the cemetery business be started? |
The company is somewhat unsure about the assumption of a growth rate of 5.1 percent its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on its investment? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimalplaces (e.g., 32.16).) |
Minimum growth rate |
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: |
Cash Flow |
–$690,000 |
243,000 |
175,000 |
256,000 |
231,000 |
5. All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. Assume Anderson uses a required return of 10 percent on this project. |
What is the NPV of the project? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) |
Net present value |
What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
Internal rate of return |
% |
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