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...
-
(a) Given a configuration of n points ai........a" in the plane, explain how to find the point x ¬ R2 that minimizes the total squared dis- (b) Apply your method when (i) a1 = (1.3), a2 = (-2,5);...
-
Add or subtract, as indicated. -(8x 3 + x - 3) + (2x 3 + x 2 ) - (4x 2 + 3x - 1)
-
Quilts R Us (QRU) is considering investing in a new patterning attachment with the cash flow profile shown in the table below. QRU's MARR is 13.5 percent/year. a. What is the internal rate of return...
-
Two different manufacturing processes are being considered for making a new product. The first process is less capital-intensive, with fixed costs of only $50,000 per year and variable costs of $700...
-
The graph below shows the number of people who consume different numbers of lollipops per year. What is the median number of lollipops consumed? Number of People 3 27 24 21 18 15 12 96 Number of...
-
< Exercise 21 Problems-Part I The following questions are based on Figures 21-10, 21-20, and 21-30, radar images of Louisiana from the Fort Polk Doppler radar site taken on October 9, 2020, at about...
-
Art can often mean different things to different people. Is this a strength or a weakness? Janaro and Altshuler (2012) argue, The treasure of art, however, is that its reality lives on after its...
-
Under what conditions can a project be terminated early?
-
How do operating statements and balance sheets differ? How are they similar?
-
During which stage of a project are most risks typically uncovered?
-
What should a project manager refer back to in order to make sure that all planned work has, in fact, been completed?
-
What is the advantage of performing sensitivity analysis along with breakeven analysis?
-
Write three functions (1) rectangle Area (2) circleArea, and (3) triangle Area to compute and return the area of a rectangle, circle, and triangle, respectively. Use these functions in a program in...
-
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
-
Identify and briefly describe the purpose and functions of a management system, work process and organization policy.
-
Identify and describe the meaning of the term's formalization and informal.
-
Describe the link between the size of an organization and the formalization process.
Study smarter with the SolutionInn App