c) The net cash flow for two projects, Coffee Shop and Hair Salon, are as follows: Year Coffee Shop Hair Salon 0 -$10 000 -$5 000 1 2 -$3000 $4,000 -$2000 $1,000 3 $6,000 $3,000 $8,000 $5,000 (i) Use the net present value criterion to decide which business project is the most profitable if the market interest rate is 6%. Explain your answer and show all your calculations. (Give your answer to 2 decimal places.)

c) The net cash flow for two projects, Coffee Shop and Hair Salon, are as follows: Year Coffee Shop Hair Salon 0 -$10 000 -$5 000 1 2 -$3000 $4,000 -$2000 $1,000 3 $6,000 $3,000 $8,000 $5,000 (i) Use the net present value criterion to decide which business project is the most profitable if the market interest rate is 6%. Explain your answer and show all your calculations. (Give your answer to 2 decimal places.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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c) The net cash flow for two projects, Coffee Shop and Hair Salon, are as follows: Year Coffee Shop Hair Salon 0 -$10 000 -$5 000 1 -$3000 -$2000 2 3 $4,000 $6,000 $1,000 $3,000 4 $8,000 $5,000 (i) Use the net present value criterion to decide which business project is the most profitable if the market interest rate is 6%. Explain your answer and show all your calculations. (Give your answer to 2 decimal places.) (ii) Estimate the IRR of the Hair Salon project and decide whether this project would proceed? Explain your answer and show all your calculations. (Give your answer to 1 decimal place.)
You are asked to evaluate the following two projects for the Norton Corporation. Using the net present value method combined with the profitability index approach described in footnote 2 of this chapter, which project would you select? Use a discount rate of 14 percent. Project X (videotapes of the weather report) ($20,000 investment) Year Cash Flow 1. $10,000 2 8,000 3 9.000 4 8.600 Project X (videotapes of the weather report) ($40,000 investment) Year Cash Flow $20,000 2 13,000 3 14.000 4 16.800
MIA Q.1) Your company expects to earn at least 18 percent on its investments. You have to choose between two similar projects (A&B). Below is the cash information for each project. Which of the two projects would you fund if the decision is based only on financial information by using net present value model? if you use payback model which project you will choose? show your calculations? Year 0 1 2 Outflow 225000 190000 0 0 Inflow C.f DE P.V Year Outflow Inflow c. f = R-C C. F D. F P.V 3 30000 0 150000 220000 -225000-190000 150000 10000 - (1+k)" 0 300000 0 5 7 30000 0 30000- 215000 205000 197000 100000 215000 175000 197000 70000 0.847 0.718 3.669 0.516 0.437 0.37 0.314 -225000-160930 107700 115710 110 94076475 72890 219743 7: Project A 4 0 1 2 100000 0 P.V of of WPV = 5PV Project B 3 4 50000 0 50000 150000 250000 250000 200000 250000 -50000 150000 300000 1 0-8470-718 0.609 0.516 -3.000.0042356107700 اسمان M 6 0 wp-v-11975 11976 15 7 50000 30000 200000 180000 120000 150000 180000 90000…
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$240,000 -$150,000 1 $100,000 $100,000 2 $95,000 $50,000 3 $45,000 $5,000 4 $90,000 $3,000 Whichever project you choose, if any, you require a return of 13% on your investment. a. If you apply the payback criterion, which investment will you choose? Why? b. If you apply the NPV criterion, which investment will you choose? Why? c. Based on your answers in (a) and (b), which project will you finally choose? Why?
Financial Manager of Timmy Company is considering two projects (project A and project H), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project H (in $) 0 -100 -100 1 10 70 2 60 50 3 80 20 Timmy Company’s cost of capital is 10 percent. Calculate payback, NPV, IRR, and MIRR for both projects. (Please have a step by step format to your answer with explainations. Thanks (=)
Consider a project with initial investment of Birr 25,000 generating the following cash flows over 4 years. Year Project cash flow (Birr) 0 (25,000) 1 5,000 2 7,000 3 13,000 4 16,000 ii.1 Based on the above details compute the following: Internal Rate of Investment (IRR) Profitability Index (PI) ii.2 Do you accept this project for investment? Give reason for your answer.
X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows: NOTE: you must show your work for ALL steps for full credit. Year Proj A Proj B 1 $ 12,000.00 $10,000.00 2 $8,000.00 $6,000.00 3 $ 6,000.00 $16,000.00 a. Which of the two projects should be chosen based on the payback method b. Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent. c. Should a firm normally have more confidence in answer a or answer b.
You are debating whether or not to invest in your best friend's business idea, so use IRR to evaluate the project: a. Cost of Capital: 10% b. Initial Investment: -Rs. 200 Mn C. Cash Flows over the past 5 years: ■ Years 1 & 2: Rs. 50 MN ■ Years 3 & 4: Rs. 100 Mn ■ Year 5: RS. 125 Mn What is the Answer (a) 15.36% (b) 30.20% (c) -17.29% (d) 26.04% (e) none of the above
The following information will be used to answer questions 8, 9, and 10. Your company can invest in 1 of the following projects: Cash Flows Year Project A Project B 0 -70.000 -65.000 1 30.000 8.000 2 10.000 8.000 3 10.000 8,000 4 18.000 9.000 O 5.000 30.000 6 4.000 40.000 The interest rate is 8%. 8a. What is the payback period for each project? 8b. If you base your decision on which project has the shortest payback, which will you choose?
Refer to two projects with the following cash flows: Project A -$100 Year Project B -$100 1 40 50 2 40 50 3 40 50 4 40 If the opportunity cost of capital is 12%, what is the profitability index for each project? (Round your answers to 4 decimal places.) Project A Project B Does the profitability index rank the projects A and B correctly? |(Click to select) v
X-treme Vitamin Company is considering two investments, both of which cost $20,000. The cash flows are as follows: Year Project A Project B 1 $ 23,000 $ 20,000 2 10,000 9,000 3 10,000 15,000 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) project A 0.87 years project B 1 year b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 8 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.)
An interior design studio is trying to choose between the following two mutually exclusive design projects: Year 0 1 2 3 Cash Flow Cash Flow (0) -$64,000 31,000 31,000 31,000 a-1 If the required return is 10 percent, what is the profitability index for both projects? (Round your answers to 3 decimal places. (e.g., 32.161)) Project I Project II -$18,000 9,700 9,700 9,700 Profitability Index a-2 If the company applies the profitability index decision rule, which project should the firm accept? O Project I O Project II Project I Project II b-1 What is the NPV for both projects? (Round your answers to 2 decimal places. (e.g., 32.16)) O Project I Project II NPV b-2lf the company applies the NPV decision rule, which project should it take?

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