Wau Sdn. Bhd, is evaluating two (2) mutually exclusive projects. The cash flows are as follows Year Year 3 5 Project AA (500,000) 50,000 150,000 250,000 200,000 100,000 Project BB (600,000) 200,000 200,000 200,000 200,000 200,000 How long does it take to recover the initial cost of investment for each project? Answer O Project AA = 3 years & Project BB = 3.25 years %3D O Project AA = 2.5 years & Project BB = 3 years %3D
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- Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?CRAYON corporation has identified the following two mutually exclusive projects: YEAR Cash flow ( A) Cash flow ( B) 0 -$300,000 -$300,000 1 68,950 135,000 2 83,900 105,500 3 93,200 75,000 4 105,600 55,600 5 115,600 45,600 What is the IRR for each of this project (range: 10-16%)? Using the IRR decision rule, which project should the company accept? How do you interpret IRR of a project? If the required return is 15%, what is the NPV of these projects? Which project will the company choose if it applies the NPV decision rule? How do you interpret NPV of a project? Calculate the Payback period and discounted pay back period of these projects! Which project should the company accept? What are the differences of payback period and discounted payback…The following are the cash flows of two projects: Project Project A B $(370) $(370) 200 270 270 270 Year 0 1 2 3 4 200 200 200 If the opportunity cost of capital is 10%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.) Answer is complete but not entirely correct. Profitability Index Project A B 1.7134 1.4000
- 17. Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B)0 −$291,000 −$41,6001 37,000 20,0002 55,000 17,6003 55,000 17,2004 366,000 14,000 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?Projects A and B have the following cash flows: End-of-Year Cash Flows 0 1 2Project A − $1,000 $1,150 $100Project B − $1,000 $100 $1,300Their cost of capital is 10%.Q UESTIO NS:a. What are the projects’ NPVs, IRRs, and MIRRs?b. Which project would each method select if the projects were mutually exclusive?Consider the following two mutually exclusive projects: Year Cash Flow Cash Flow B 0 -$318,844 -$27,476 1 27,700 9,057 2 56,000 10,536 3 55,000 11,849 4 399,000 13,814 The required return is 15 percent for both projects. Which one of the following statements related to these projects is correct? A. Because both the IRR and the PI imply accepting Project B, that project should be accepted.B. The profitability rule implies accepting Project A.C. The IRR decision rule should be used as the basis for selecting the project in this situation.D. Only NPV implies accepting Project A.E. NPV, IRR, and PI all imply accepting Project A.
- 10. NPV versus IRR Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$77,500 -$77,500 1 43,000 21,000 29,000 28,000 3. 23,000 34,000 21,000 41,000 What is the IRR for each these projects? If you apply the IRR a. decision rule, which project should the company accept? Is this decision necessarily correct? b. If the required return is 11 percent, what is the NPV for each of the projects? Which project will you choose if you apply the NPV decision rule? Over what range of discount rates would you choose Project A? Project B? At what discount rate would you be indifferent between these two projects? Explain. с. roiects:Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 15,456 5,225 8,223 13,013 8,705 0 1 234 -$ 276,363 26,400 51,000 57,000 402,000 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period b. What is the payback period for Project B? Payback period c. What is the discounted payback period for Project A? Discounted payback periodPart B: Solve the following excersises: 1. A company is considering two mutually exclusive projects X and Y. Each require an initial investment of OMR 100,000.The after tax cash inflows associated with each project are as follows: Year Project X Cash flows Project Y Cash flows (Initial Investment) 120,000 120,000 25,000 20,000 2 ? ? 3 ? ? ? ? 5 ? ? (a) Complete the table where Payback period for Project X is 3.5 and for project Y is 4. (b) Which project is better?
- The following are the cash flows of two projects: Year Project A Project B -$200 -$200 01234 Project A B If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.) Profitability index 80 80 80 80 00 100 100 100 Is the project with the highest profitability index also the one with the highest NPV? Yes NoX construction is considering two projects to develop. The estimated net cash flow from each project is as follows:YearProject X ($)Project Y ($)1110,00075,000265,000150,0003100,00060,0004115,00055,000535,00060,000Total425,000400,000Each project requires an investment of $ 200,000. The cost of capital is 10%.Require toa) Calculate Net Present Value, Payback period, ARR and Profitability Index.b) Which Project is to be recommended to develop based on NPV, Profitability Index, Payback period and ARR? SuggestQuestion 2: Boisjoly Product Company is considering two mutually exclusive investment projects. The projects' annual expected cash flows are as follows: Estimated Net Cash Flows (million $) Year Project X Project Y 0 (405) (300) 1 134 (387) 2 134 (193) 134 (100) 4 134 600 5 134 600 6 134 850 7 0 (180) (note: numbers in brackets are costs) Compute IRR for each project. If you were told that the company's cost of capital (and also MARR) was 15% per year, which project the company should select?