Business Finance Ch8 Quiz - Connect
Consider the following cash flows: Year Cash Flow 0 -$7,000 1 2,000 2 4,300 3 1,800 4 1,500 What is the payback period for the cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
(a) 0 -7000 -7000 1 2,000 -5000 2 4,300 -700 3 1,800 1,100 Payback period = 2nd year +((7000 - 6300)/1800) Payback period = 2.38888 Payback period = 2.39 years
Hanse, Inc., has the following two mutually exclusive projects available. Year Project R Project S 0 -$78,500 -$98,800 1 27,400 24,700 2 26,400 24,700 3 24,400 39,700 4 18,400 34,700 5 11,300 13,700 a.What is the crossover rate for these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b.What is the NPV of each project at the crossover rate? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
(a) Crossover rate = 9.94% (b) NPV project R(9.94%) = 6,248.81 NPV Project S(9.94%) = 6,248.81 Excel work: https://gyazo.com/37ef560169ea9a91662031dc6dcc62e4 Formula work: https://gyazo.com/8e1b0ba0521588cbcf89af4b46ded394
A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 -$149,000 1 67,000 2 72,000 3 56,000 What is the project's IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
(a) IRR = Rate at which least +ve NPV + [ NOv at that rate / change in NPV due to 1 % in rate ] * 1% IRR = 15% + [ 524.12 / 2380.94 ] * 1% IRR = 15% + 0.22% IRR = 15.22% (b) iF iIRR required is 16%, reject the project as it is not giving that IRR Work for 15.22% and 16% NPV https://gyazo.com/c08353444294f08850f6959d0d5b8ade
A project that will provde annual cash flows of $3,100 for nine years costs $10,400 today. a.At a required return of 12 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b.At a required return of 28 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c.At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
(a) NPV =PV(rate,nper,pmt)-cost NPV(12%) =PV(12%,9,-3100)-10400 NPV(12%) =6117.57 (b) NPV =PV(rate,nper,pmt)-cost NPV(28%) =PV(28%,9,-3100)-10400 NPV(28%) = -528.94 (c) IRR =RATE(9,3100,-10400) IRR = 26.11%
Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 -$42,500,000 1 66,500,000 2 -17,500,000 a.If the company requires a return of 10 percent on its investments, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b.Compute the IRRs for this project. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Enter the larger IRR in the first answer box and the smaller IRR in the second answer box. If you can only calculate one IRR, enter it in both boxes to receive partial credit. A negative answer should have a minus sign.)
(a) NPV = $3,491,735.54 (b) Larger IRR = 22.99% Smaller IRR = -66.52% Work shown below: https://gyazo.com/138e6d9d4f27bfa76fbee6b9730df207
The Whenworth Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) 0 -$74,000 -$32,000 1 28,000 10,000 2 34,000 21,500 3 40,000 15,500 a-1. If the required return is 13 percent, what is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) a-2.If the company applies the profitability index decision rule, which project should it take? b-1.If the required return is 13 percent, what is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b-2.If the company applies the net present value decision rule, which project should it take?
(a-1) Project I PI = 1.069 Project II PI= 1.138 (a-2) Accept Project II because it has a higher PI (b-1) Project I NPV(13%) = 5127.75 Project II NPV(13%) = 4429.49 (b-2) Accept Project I because it has a higher NPV(13%) Work shown: https://gyazo.com/9c577a442e62802fa2b4d561d42512a8
You're trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $24.2 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $2,095,000, $2,285,000, $2,314,000, and $1,466,000 over these four years, what is the project's average accounting return (AAR)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Average accounting return = 16.86% Work shown: https://gyazo.com/a21b4c738edd385fa2f211852797a9b7
Doak Corp. is evaluating a project with the following cash flows. The company uses a discount rate of 8 percent and a reinvestment rate of 5 percent on all of its projects. Year Cash Flow 0 -$15,800 1 6,900 2 8,100 3 7,700 4 6,500 5 -3,900 Calculate the MIRR of the project using all three methods with these interest rates. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Discount approach = 21.81% Reinvestment approach = 15.56% Combination approach = 14.74% Answer: https://gyazo.com/659a778ce68ea99523380fc3cc5295f9 Work shown: https://gyazo.com/f306b3580dd3be5fb263ab685693db18
Doak Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 -$15,200 1 6,300 2 7,500 3 7,100 4 5,900 5 -3,300 The company uses an interest rate of 12 percent on all of its projects. Calculate the MIRR of the project using all three methods. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Discounting approach = 21.05% Reinvestment approach = 16.53% Combination approach = 16.07% Excel work: https://gyazo.com/e2820578f25a393e35e18fc56fb7d984
Coore Manufacturing has the following two possible projects. The required return is 10 percent. Year Project Y Project Z 0 -$27,900 -$59,000 1 13,900 17,500 2 12,300 30,000 3 14,700 15,500 4 10,300 28,000 a.What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) b.What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c.Which, if either, of the projects should the company accept?
Project Y CF0 = -27,900 CF1 = 13,900 CF2 = 12,300 CF3 = 14,700 CF4 = 10,300 Required Return = 10% (b) NPV = -27,900 + 13,900/(1.1)^1 + 12,300/(1.1)^2 + 14,700/(1.1)^3 + 10,300/(1.1)^4 NPV = 12,981.02 (a) PI = (12,981.02 + 27,900)/ 27,900 PI = 1.465 Project Z CF0 = -59,000 CF1 = 17,500 CF2 = 30,000 CF3 = 15,500 CF4 = 28,000 Required Return = 10% (b) NPV = -59,000 + 17,500/(1.1)^1 + 30,000/(1.1)^2 + 15,500/(1.1)^3 + 28,000/(1.1)^4 NPV = 12,472.24 (a) PI = (12,472.24 + 59,000)/ 59,000 PI = 1.211 (c) Accept project Y because it has a higher NPV and a higher PI