Reference no: EM131526829
Problem 1
All Techniques- Decision among mutually exclusive investments. Pound industries is attempting to select the best of three mutually exclusive projects. The initial investment and after tax cash inflows associated with these projects are shown in the following table
Cash flow Project A Project B Project C
Initial investment (CF) $80,000 $110,000 $110,000
Cash inflows (CF), T=1 to 5 $25,000 $37,000 $38,500
Calculate the payback period for each project
Calculate the net present value (NPV) of each project, assuming that the fimrm has a cost of capital equal to 11%
Calculate the internal rate of return (IRR) for each project
Indicate which project you would recommend
A-the payback period of project A is ___years
the payback period of project B is ___years
the payback period of project C is ___years
B-the NPV of project A is $____
the NPV of project B is $____
the NPV of project C is $____
C- The IRR of project A is _____
The IRR of project B is _____
The IRR of project C is _____
D- which project would you recommend?
Project A
Project B
Project C
Problem 2
IRR, investment life, and cash inflows Oak enterprise accepts projects earning more than the firms 15% cost of capital. Oak is currently considering a 10 year project that provides annual cash inflows of $50,000 and requires an initial investment of $328,300
Deter the IRR of the project is it acceptable
Assuming that the cash inflos continue to be $50,000 per year how many additional years would the flows have to continue to make the project acceptable (that is, to make it have an IRR of 15%?
A. the project IRR is ___%
Is the project acceptable?
Yes or no
B. assuming that the cash inflows continue to be $50,000 per year the number of additional years the flows would have to continue to make the project acceptable at the 15% discount rate is ____ additional years
C) with the given life, initial investment and cost of capital the minimum annual cash inflow that the firm should accept is $______