(ii). Newfoundland Vintners Co-operative is considering two mutually exclusive projects: Absinth and Brandy. Project Absinth requires...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
(ii). Newfoundland Vintners Co-operative is considering two mutually exclusive projects: Absinth and Brandy. Project Absinth requires a $20,500 cash outlay today and is expected to generate after- tax cash flows of $11,000 in year 1, $8,500 in year 2, and $7,500 in year 3. Project Brandy requires a $30,000 cash outlay today and is expected to generate after-tax cash flows of $7,000 in year 1, $9,000 in year 2, $11,000 in year 3, and $16,000 in year 4. Both projects can be replicated at the end of its life. The appropriate discount rate for both projects is 10 percent. a) Calculate the NPV of both projects. Given that the projects are mutually exclusive and can be replicated, which project should be accepted? (11 marks) b) Calculate the payback periods of both projects if cash flows occur evenly throughout the year. (4 marks) c) Calculate the discounted payback periods of both projects if cash flows occur evenly throughout the year. (6 marks) (2 marks) d) Calculate the profitability index of both projects. e) Using the information in (a) – (d), which project should be chosen? Why? (2 marks) (ii). Newfoundland Vintners Co-operative is considering two mutually exclusive projects: Absinth and Brandy. Project Absinth requires a $20,500 cash outlay today and is expected to generate after- tax cash flows of $11,000 in year 1, $8,500 in year 2, and $7,500 in year 3. Project Brandy requires a $30,000 cash outlay today and is expected to generate after-tax cash flows of $7,000 in year 1, $9,000 in year 2, $11,000 in year 3, and $16,000 in year 4. Both projects can be replicated at the end of its life. The appropriate discount rate for both projects is 10 percent. a) Calculate the NPV of both projects. Given that the projects are mutually exclusive and can be replicated, which project should be accepted? (11 marks) b) Calculate the payback periods of both projects if cash flows occur evenly throughout the year. (4 marks) c) Calculate the discounted payback periods of both projects if cash flows occur evenly throughout the year. (6 marks) (2 marks) d) Calculate the profitability index of both projects. e) Using the information in (a) – (d), which project should be chosen? Why? (2 marks)
Expert Answer:
Answer rating: 100% (QA)
A Net Present value project Brandy should be accept because NPV of Vrandy project great... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
A company is considering two mutually exclusive investment projects. Each requires an initial investment of $25,000. Project A will generate an annual profit of $6000 for eight years and have a...
-
The Bahrain Petroleum Company (BAPCO) is considering two mutually exclusive projects. Each requires an initial investment of US$100,000. Faisal AlMahroos, president of the company, has a maximum...
-
Bagel Pantry Inc. is considering two mutually exclusive projects with widely differing lives. The companys cost of capital is 12%. The project cash flows are summarized as follows. a. Compare the...
-
Describe the typical terrorist cell.
-
Grocery chain Safeway Inc. discloses its inventory in the following manner on the balance sheet itself (dollars in millions). Rival grocer SUPERVALU Inc., on the other hand, disclosed information...
-
Fill in the blank field in this text: Use the[1]____________________key, on the keyboard, to flip the door swing while placing doors using the Door tool.
-
Summarize the role and importance of urbanization in the world and how some cities change culture.
-
The dean of the Graduate School of Management at the University of California at Davis was considering whether to offer a particular seminar for executives. The tuition was $650 per person. Variable...
-
Network security protocol project. Diagrams are not needed. Student: THREAT INTERCEPTION PROJECT GRADING RUBRIC Criteria Points Possibl Points Earned Instructor's Comments e Minimum length length...
-
You have estimated spot rates as follows: r1 = 5.00%, r2 = 5.40%, r3 = 5.70%, r4 = 5.90%, r5 = 6.00%. a. What are the discount factors for each date (that is, the present value of $1 paid in year t)?...
-
Written work submission: Taking an online course, it is sometimes difficult to show all the proper work that goes to solve a problem. So we will use this platform to practice showing work of...
-
Interview an older male you know well about what it means to grow up as a male in their culture. a, Who did you interview? b. What were they told about growing up as a male in their culture? c. How...
-
Jason had been at a work Christmas party and he had drunk 8 beers. He decided to drive home as it was raining heavily outside. Kylie was also at the Christmas party and saw that Jason was having a...
-
3. Consider a standing wave on a string with a length of 1.500 m. The standing wave is vibrating in the 4th harmonic mode. The frequency is 147.0 Hz. a. Determine the wavelength. b. Determine the...
-
Intake officers decide whether juveniles should be (1) unconditionally released from the juvenile justice system, (2) released to parents or guardians subject to a subsequent juvenile court...
-
Problem 3. A human head can be modeled as 15cm diameter sphere, with the sculp covering approximately 25%. On average adults have 100,000 scalp hairs. a) What is the density of hairs, measured as...
-
The graph below shows position versus time for a tennis player moving along a straight-line path. What is the tennis player's average velocity (in m/s) over the following time intervals? (Indicate...
-
Discuss the information available from the following techniques in the analysis of inorganic pigments used in antique oil paintings: (i) Powder X-ray diffraction, (ii) Infrared and Raman...
-
A corporation is considering a proposal for the purchase of a machine that will save $130,000 per year before taxes. The cost of operating the machine, including maintenance, is $20,000 per year. The...
-
Consider the following financial data for a project: Initial investment...........$20,000 Project life...............8 years Salvage value ......$ 0 Annual revenue...........$9,500 Annual expenses...
-
Which of the following statements is incorrect? (a) Holding on to cash is the most riskfree investment option. (b) To maximize your return on total assets (ignoring financial risk), you must put all...
-
Solve Chapter Problem 13.21, assuming the power spectral density is band limited with \(\omega_{1}=50 \mathrm{rad} / \mathrm{s}\) and \(\omega_{2}=200 \mathrm{rad} / \mathrm{s}\). Data From Chapter...
-
Solve Chapter Problem 13.21, assuming the force is narrowband with a power spectral density given by \(S_{F}(\omega)=\frac{3 \times 10^{-3}}{2+5 \omega^{2}}\). Data From Chapter Problem 13.21: A SDOF...
-
Fine Leather Ltd has provided the following production and sales information for each pair of its dress shoes. The fixed costs for the period are \($1\) 125 000. Required (a) Calculate the...
Study smarter with the SolutionInn App