Evaluating two mutually exclusive projects

Assignment Help Finance Basics
Reference no: EM133117325

(a) A project has 6 million cashflow each year for 5years, payback period of 4 years and rate of return 11%. Solve for the project's NPV, by showing all relevant workings. Verify your answer with an appropriate Excel function. Indicate whether you should proceed with the project.

(b) A company is evaluating two mutually exclusive projects A and B, and both have conventional cashflows (i.e. all inflows after the initial outflow). Project A has an IRR of 14% and the NPV profiles of Project A and Project B cross-over at 10%.

Illustrate, using a graph or any other means, the range of values of cost of capital, when the NPV rule and IRR rule will not lead to the same decision.

(C) Discuss the multiple issues of using IRR as a decision rule for choosing a project.

Reference no: EM133117325

Questions Cloud

Savings account for the repayment of the debt : Kelowna Inc. reports a $67,500 liability to be paid four years from today. The firm plans to open a savings account for the repayment of the debt when it is due
How many units in total must be sold to break even : How many units in total must be sold to break even? Prepare a contribution margin income statement for the month
New orleans has made a commitment : It is September and an exporter (a business looking to purchase commodity to sell it later) in New Orleans has made a commitment to sell
Principles of public finance : In this homework, you are asked to apply the principles of public finance to the case of education. Applying the principles of public finance, why should or sho
Evaluating two mutually exclusive projects : (a) A project has 6 million cashflow each year for 5years, payback period of 4 years and rate of return 11%. Solve for the project's NPV, by showing all relevan
What is the value of your account on april : On January 1, you sold short one round lot (that is, 100 shares) of Disney stock at $21 per share. What is the value of your account on April
Compute roi using net book value and gross book value : In computing ROI, this division uses end-of-year asset values in the denominator. Compute ROI using net book value and gross book value
What is a mismatch risk : -Suppose you borrow RM10,000,000 in the interbank money market at a KLIBOR yield of 6% p.a for a term of 1 month.Should you buy or sell KLIBOR futures contract
What is dollar profit : You purchase 21 call option contracts with a strike price of $115 and a premium of $4.40. Assume the stock price at expiration is $122.46.

Reviews

Write a Review

Finance Basics Questions & Answers

  How does a balanced budget amendment affect budget process

Determining Cause and Effect How does a balanced budget amendment affect the budget process?

  Calculate the current yield using given data

A perpetual bond with a par value of $1,000.00 and a semiannual coupon has a nominal yield to maturity of 5.20% and a current price of $1,055.00.

  Appropriate discount rate for the company

From that point on dividends are expected to grow by 3% per year indefinitely. The appropriate discount rate for the company is 13%. The stock's fair value is:

  Objective and quantifiable science

Should risk management could be an objective and quantifiable science?

  Operational leverage of a real estate development project

What is operational leverage in the context of a real estate development project? Explain why this characteristic causes investment in a development project.

  What is your best guess as to roce expected for fiscal year

Jet form Corporation traded at a price-to-book ratio of 1.01 in May 1999. Its most recently reported ROCE was 10.1 percent, and it is deemed to have a required.

  Maximum amount of new loans

What is the maximum amount of new loans that this bank can make? Assume that the bank makes these loans. What will the new balance sheet look like?

  Explain in detail various steps involved

Why and what the bank needs to check before financing a project.

  Effects of the changes of market interest rate

Describe the effects of the changes of market interest rate on the values of the two bonds.

  Explain homemade leverage

Maestro Foods expects to earn $365,000 in perpetuity before interest and taxes from its line of gourmet TV dinners. the company has a debt to assets ratio of 40

  Calculate the npv for machine-vandalay industries

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,096,000 and will last for six years.

  Briefly describe one 1 way the us financial markets impact

briefly describe one 1 way the u.s. financial markets impact the economy one 1 way the u.s. financial markets impact

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd