Which project would you select based on the npv

Reference no: EM1344954

Exercise 1:

Describe what is the NPV of a project that costs $100,000 and returns $50,000 annually for three years if the opportunity cost of capital is 14%?

Exercise 2:

What is the approximate maximum amount that a firm should consider paying for a project that will return $15,000 annually for 5 years if the opportunity cost is 10%?

Exercise 3:

What is the IRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for six years?

Exercise 4:

Alliance Corp is considering making an investment of $500 million. It is evaluating two mutually exclusive projects. Each project has a 15 year life. The Gamma project will produce cash flows of $80 million every year for the next 15 years. The Rho project will produce cash flows of $50 million for the first three years, $90 million for the next two years, $120 million for the next five years and $80 million for the last five years. Both projects are perceived to be equally risky and Alliance Corp expects at least a 14% return from the projects.

a. Evaluate the payback period for each project. Which project would you select based on the payback period? Why?

b. Find the NPV for each project. Which project would you select based on the NPV? Why?

c. Evaluate the internal rate of return for each project. Which project would you select based on the internal rate of return? Why?

Exercise 5:

Reactive Industries has the following capital structure. Its corporate tax rate is 35 percent. What is the weighted average cost of capital?

Security Market Value Required Rate of Return
Debt
Preferred Stock
Common Stock $20 million
10 million
50 million 6%
8
12

Reference no: EM1344954

Questions Cloud

Algorithm to produce a list of customers : Draw an algorithm to produce a list of customers from the Glad Rags Clothing Company's customer master file.

Find the third dark fringe regarding central bright fringe : You have just built a house out in the country and it comes to your attention that you need to install a lightning rod. Being naturally curious you ask a hardware salesperson how lightning rods work and they accurately tell you.

Examine successes-problems of multinational enterprises : Analyze the successes and problems of multinational enterprises (MNEs) in exploiting opportunities in emerging markets.

Cash for clunkers and roi : A clunker that travels 12,000 miles a year at fifteen mpg uses 800 gallons of gas a year. A vehicle that travels 12,000 miles a year at 25 mpg uses 480 gallons a year.

Which project would you select based on the npv : Evaluate the payback period for each project. Which project would you select based on the payback period and find the NPV for each project. Which project would you select based on the NPV?

Role of project managers and telecommunications managers : Describe in scholarly detail "technical jargon" and describe the role of project managers and telecommunications managers.

Would the next package make it into the truck : A freight company uses a compressed spring to shoot 1.7 kg packages up a 1m high frictionless ramp into a truck. The spring constant is 241 N/m and the spring is compressed 33 cm.

Solving financial management issues : Assume purchase orders are placed for twice as many shares of a stock as the number of shares offered for sale in a one-hour period. Explain the relationship between the reported trading price just before and just after that one-hour period.

Suppose that no heat is exchanged with the surroundings : The men's world record for the shot put, 23.12m, was set by Randy Barnes of the United States on May 20, 1990. If the shot was launched from 6 f above the ground at an initial angle of 42 degrees, what was its initial speed.

User Account

All Pages