OPQ Inc. considers investment in three mutually-exclusive projects. Project A costs $120,000 in Year 0 and...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
OPQ Inc. considers investment in three mutually-exclusive projects. Project A costs $120,000 in Year 0 and generates the free cash flow of $40 thousand per annum during the first three years, and $30 thousand in Years 4 and 5. Project B also costs $120,000 in Year 0 and generates the free cash flow of $30 thousand in Years 1 and 2, and $40 thousand in Years 3 through 5. Project C costs $200,000 in Year 0 and generates the free cash flow of $50 thousand in Years 1 and 2, and $80 thousand in Years 3 through 5. OPQ Inc. considers applying the 14% cost of capital as a discount rate for Projects A and B. Project C is riskier than Projects A and B. Therefore, OPQ Inc. management believes that they should apply the 17% cost of capital as a discount rate for Project C. What is the NPV and the IRR of each project? Which project should OPQ Inc. choose based on the NPV numbers? Which project should OPQ Inc. choose based on the IRR figures? OPQ Inc. considers investment in three mutually-exclusive projects. Project A costs $120,000 in Year 0 and generates the free cash flow of $40 thousand per annum during the first three years, and $30 thousand in Years 4 and 5. Project B also costs $120,000 in Year 0 and generates the free cash flow of $30 thousand in Years 1 and 2, and $40 thousand in Years 3 through 5. Project C costs $200,000 in Year 0 and generates the free cash flow of $50 thousand in Years 1 and 2, and $80 thousand in Years 3 through 5. OPQ Inc. considers applying the 14% cost of capital as a discount rate for Projects A and B. Project C is riskier than Projects A and B. Therefore, OPQ Inc. management believes that they should apply the 17% cost of capital as a discount rate for Project C. What is the NPV and the IRR of each project? Which project should OPQ Inc. choose based on the NPV numbers? Which project should OPQ Inc. choose based on the IRR figures?
Expert Answer:
Answer rating: 100% (QA)
SOLUTION STEP 1 CONTINUATION Year Project A Project B 0 120000 120000 1 40... View the full answer
Related Book For
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne
Posted Date:
Students also viewed these accounting questions
-
Can you think of any negatively correlated attributes and benefits other than those listed in Figure 2-6? Can you think of any other strategies to deal with negatively correlated attributes and...
-
An engineer measures a dependent variable y and independent variables x 1 , x 2 , and x 3 . MINITAB output for the model y = β 0 + β 1 x 1 + β 2 x 2 +...
-
What is the name of the functional group of the entire area with all the 3 oxygens. 0: CO
-
The standard cost card for Balsam indicates each unit of product should take 1.5 hours of direct labor at a cost of $10 per hour. During the current period, Balsam produced 3,000 units, used 5,000...
-
Compare the classical and Keynesian views on the speed of wage and price adjustment. What are the important consequences of the differences in these views?
-
You live in the City of Peterborough. City Council recently created By-law 2720, which states 1. No bill, poster, sign or other advertisement of any nature whatsoever shall be attached to any public...
-
In October, 2011, the first five transactions of Fines Maid Service, Corp., have been posted to the accounts as follows: Requirements 1. Prepare the journal entries that served as the sources for the...
-
Happy Feet buys hiking socks for $6 a pair and sells them for $10. Management budgets monthly fixed costs of $12,000 for the relevant range of 0 (zero) to 12,000 pairs. Required Consider each of the...
-
Consider the same simple setting used in the TRS setting. Bank A, a highly rated bank, has a funding cost of Libor (L) rate, while Bank B, a lower rated entity, has a funding cost of L + 40 basis...
-
Using lab 7 with a three-day lead time (all original values), we will analyze six different scenarios to determine which would be the best scenario based on the total cost. Scenario A - Min is 3,500...
-
A friend asks you to borrow $300 and agrees to repay it with a 3% simple interest per month. How much interest will you earn after 5 months?
-
Let A = 3 B , B: 2 and C= Then 5 3 3 3A+2B-C= Add Work Submit Question Jump to Answer
-
(a) Calculate (i) the phase velocity and (ii) the group velocity for deep ocean waves at a wavelength of 100 m. (b) Determine the minimum value of the phase velocity of water waves on deep water....
-
If you are marketing consultant to KTM Berhad you are required to prepare information for each capacity management strategy. 5 types of information needed by KTM to manage its capacity & support with...
-
Identify a feature of an intrinsic outcome. Multiple choice question. It is an event or object that results from an employee's own efforts. It is an outcome derived from personal interactions with...
-
What are the security implications of context switching, particularly in terms of isolating process states and preventing unauthorized access to sensitive information during the context switch...
-
Andrew Parks is given the task of staffing the new Customer Service Unit. This unit was created in response to a newly installed online customer information system. The customer service...
-
What are the before image (BFIM) and after image (AFIM) of a data item? What is the difference between in-place updating and shadowing, with respect to their handling of BFIM and AFIM?
-
Compute the coefficients for a least squares regression equation and write the equation, given the following sample statistics. a. x-bar = 50, y-bar = 100, sx = 25, sy = 75, rxy = 0.6, n = 60 b....
-
Of 100 patients with a certain disease, 10 were chosen at random to undergo a drug treatment that increases the cure rate from 50% for those not given the treatment to 75% for those given the drug...
-
Find the standard error to estimate the population mean for each of the following. a. n = 17; 95% confidence level; s = 16 b. n = 25; 90% confidence level; s2 = 43
-
Supermarket companies sometimes receive a discount from suppliers for meeting a specified sales target. Such discounts may be paid in advance. The accounting treatment of the discount could be dealt...
-
How do you decide whether or not a transaction is material?
-
What are the missing words in the following statements? (a) The accounting equation is represented by ______ = _______ + ___________. (b) Every transaction must be recorded _____.
Study smarter with the SolutionInn App