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Choosing between two projects with acceptable payback periods Shell Camping Gear, Inc. , is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table:
Cash inflows (CFt)
Year Project A Project B
1 $10,000 $40,000
2 20,000 30,000
3 30,000 20,000
4 40,000 10,000
5 20,000 20,000
a. Determine the payback period of each project.
b. Because they are mutually exclusive, Shell must choose one. Which should the company invest in?
c. Explain why one of the projects is a better choice than the other.
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Explain how a net present value (NPV) profile is used to compare projects. How does this compare to internal rate of return (IRR)? How does reinvestment affect NPV and IRR?
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Suppose a stock had an initial price of $95 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $114.
By how much will their earnings after tax change if they choose the more aggressive financing plan instead of the more conservative?
Determine the rate of return on a bond that pays a coupon rate of 9 percent, has a par value of $1,000, matures in five years and is currently selling for $714?
If the reasoning from premises to a conclusion of a syllogism is accurate then it is considered valid. Can one come to a false conclusion with a valid syllogism?
ABC Inc. borrows 100m JPY when JPY spot rate is JPY120/$. The JPY interest rate for the loan is 3%. One year later when ABC pays back the JPY principal and interest, the exchange rate is JPY 95/$. What is the dollar cost of ABC's JPY loan?
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