8.4.2

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

You are trying to decide between three mutually exclusive investment opportunities. The most appropriate tool for identifying the correct decision is ________. net present value (NPV) profitability index internal rate of return (IRR) incremental internal rate of return (IRR)

A

Assume that projects A and B are mutually exclusive. The correct investment decision and the best rationale for that decision is to ________. invest in project A, since NPVB < NPVA invest in project B, since IRRB > IRRA invest in project B, since NPVB > NPVA invest in project A, since NPVA > 0

A) NPVA = -100 + 40 / (1 + 0.11)1 + 50 / (1 + 0.11)2 + 60 / (1 + 0.11)3 = $20.49; NPVB = -73 + 30 / (1 + 0.11)1 + 30 / (1 + 0.11)2 + 30 / (1 + 0.11)3 + 30 / (1 + 0.11)4 = $20.07 invest in project A, since NPVB < NPVA

A company has identified the following investments as looking promising. Each requires an initial investment of $1.2 million. Which is the best investment? a perpetuity that generates a cash flow at the end of year 1 of $100,000, has a growth rate of 1.25%, and a cost of capital of 11.0% a perpetuity that generates a cash flow at the end of year 1 of $800,000, has a growth rate of 2.25%, and a cost of capital of 11.8% an investment that generates a cash flow of $400,000 at the end of each of the next five years, when the cost of capital is 6.1% an investment that generates a cash flow of $200,000 at the end of each of the next ten years, when the cost of capital is 6.1%

B) NPV (B) = -1.2 + 0.8 / (0.118 - 0.0225) = $7.177 million NPV a perpetuity that generates a cash flow at the end of year 1 of $800,000, has a growth rate of 2.25%, and a cost of capital of 11.8%

An investor is considering the two investments shown above. Her cost of capital is 8%. Which of the following statements about these investments is true? Time: not years. The investor should take investment A since it has a greater net present value (NPV). The investor should take investment A since it has a greater internal rate of return (IRR). The investor should take investment B since it has a greater net present value (NPV). The investor should take investment B since it has a greater internal rate of return (IRR).

C) Using a financial calculator, NPV(A) = $17,629 ;NPV(B) = $44,048 ;comparison of NPV is used to decide between mutually exclusive projects. The investor should take investment B since it has a greater net present value (NPV).

Assume that projects Alpha and Beta are mutually exclusive. The correct investment decision and the best rationale for that decision is to ________. invest in project Beta, since NPVBeta > 0 invest in project Alpha, since NPVBeta < NPVAlpha invest in project Beta, since IRRB > IRRA invest in project Beta, since NPVBeta > NPVAlpha > 0

D) NPV Alpha NPV = -$79 + $20 / (1 + 0.16)1 + $25 / (1 + 0.16)2 + $30 / (1 + 0.16)3 + $35 / (1 + 0.16)4 + $40 / (1 + 0.16)5 = 14.41 NPV BetaNPV = -$80 + 25 / (1 + 0.15)1 + $25 / (1 + 0.15)2 + $25 / (1 + 0.15)3+ $25 / (1 +0.15)4 + $25 / (1 + 0.15)5 + $50 / (1 + 0.15)6 + $25 / (1 + 0.15)7= 24.01 invest in project Beta, since NPVBeta > NPVAlpha > 0

13) An investor is considering the two investments shown above. Which of the following statements about these investments is true? Time: Year 0 1 2 3 4 The investor should take investment A since it has a greater net present value (NPV). The investor should take investment A since it has a greater internal rate of return (IRR). The investor should take investment B since it has a greater net present value (NPV). Neither investment should be taken since they both have a negative net present value (NPV).

D) Using a financial calculator, NPV(A) = -$0.01906 million, IRR(A) = 7.56%, NPV(B) = -$0.014567, IRR(B) = 6.46%;Comparison of NPV is used to decide between mutually exclusive projects. Neither investment should be taken since they both have a negative net present value (NPV).


Kaugnay na mga set ng pag-aaral

Chapter 2: The Idea of the Public Good: Ideologies and Isms

View Set

Why do companies use advertising?

View Set

Intrusion Detection Systems, IST447 - EDRM Content - Potter B, Network+ 1, Chapter 17, Security+ Chapter 9, Security+ Chapter 13, Computer Security Chapter 13, Chap. 13, CH 13 Intrusion Detection Systems and Network Security CIS 2337 Vocab, Security+...

View Set

Life Insurance Exam - Chuck Johnson

View Set

Study/Reading Guide: Articles 25-29: The Resurrection and Ascension of Jesus

View Set