Project #16412 - Finance Investment Decisions

 

A firm evaluates all of its projects by applying the IRR rule.

 

 

 

Year

Cash Flow

0

–$

155,000       

1

 

61,000       

2

 

78,000       

3

 

62,000       


 

 

 

Requirement 1:

What is the project's IRR? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

 

 

 

  Internal rate of return

   %  

 

 

 

Requirement 2:

If the required return is 13 percent, should the firm accept the project?

 

 

 

 

Consider the following cash flows:

 

 

 

Year

Cash Flow

0

 

–$

33,500

 

1

 

 

14,500

 

2

 

 

17,200

 

3

 

 

11,900

 


 

 

 

Required:

What is the IRR of the above set of cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

 

 

 

  Internal rate of return

%  

 

 

 

Romboski, LLC, has identified the following two mutually exclusive projects:

 

 

 

Year

Cash Flow (A)

Cash Flow (B)

0

 

−$

63,000

 

 

−$

63,000

 

1

 

 

39,000

 

 

 

25,700

 

2

 

 

33,000

 

 

 

29,700

 

3

 

 

22,500

 

 

 

35,000

 

4

 

 

14,600

 

 

 

24,700

 


 

 

 

Requirement 1:

(a)

What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answer as a percentage roundedto 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?

 

 

 

 

 

 

Requirement 2:

(a)

Assume the required return is 14 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

  Project A

$     

  Project B

$    


 

             

 

(b)

Which project will you choose if you apply the NPV decision rule?

 

 

 

 

 

 

Requirement 3:

(a)

Over what range of discount rates would you choose Project A? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

         

 

  Project A

@ %  

 

 

 

(b)

Over what range of discount rates would you choose Project B? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

 

 

 

  Project B

@ %  

 

 

 

(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).)

 

 

 

  Discount rate

%  

 

 

 

Kerron Company is presented with the following two mutually exclusive projects. The required return for both projects is 15 percent.

 

 

 

Year

Project M

Project N

0

–$141,000     

–$364,000     

1

64,400     

148,000     

2

82,400     

189,000     

3

73,400     

133,000     

4

59,400     

119,000     


 

 

 

Required:

(a)

What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

 

 

 

  

  IRR  

  Project M

%  

  Project N

%  


 

 

 

(b)

What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

 

 

 

  

      NPV  

  Project M

$  

  Project N

$  


 

 

 

(c)

Which, if either, of the projects should the company accept?

 

 

 

 

 

 

An investment has an installed cost of $562,382. The cash flows over the four-year life of the investment are projected to be $191,584, $235,318, $183,674, and $151,313.

 

 

 

Requirement 1:

If the discount rate is zero, what is the NPV? (Do not round intermediate calculations.)

 

 

 

  NPV

$  

 

 

 

Requirement 2:

If the discount rate is infinite, what is the NPV? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.)

 

 

 

  NPV

$  

 

 

 

Requirement 3:

At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

 

 

 

  Discount rate

%  

 

 

 

Subject Business
Due By (Pacific Time) 11/17/2013 02:00 pm
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