Thomas Company is considering two mutually exclusive projects. The firm, which has a 12% cost of capital,
Question:
a. Calculate the NPV of each project, and assess its acceptability.
b. Calculate the IRR for each project, and assess its acceptability.
c. Draw the NPV profiles for both projects on the same set of axes.
d. Evaluate and discuss the rankings of the two projects on the basis of your findings in parts a, b, and c.
e. Explain your findings in part d in light of the pattern of cash inflows associated with eachproject.
Project A Project B Initial investment (CFo) $130,000 85,000 Year (t) Cash inflows (CF) $25,000 35,000 45,000 50,000 55,000 $40,000 35,000 30,000 10,000 5,000 4
Step by Step Answer:
a and b Project A CF 0 130000 CF 1 25000 CF 2 35000 CF 3 45000 CF 4 50000 CF 5 55000 Set I 12 NPV A ...View the full answer
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Related Video
The internal rate of return, or IRR, is a metric used to measure the profitability of an investment. It is the discount rate that makes the net present value of an investment equal to zero. To calculate the IRR, we need to know the investment\'s cash flows. These are the inflows and outflows of cash that will result from the investment. For example, an investment in a property might have cash outflows for the purchase price, closing costs, and any renovations, and cash inflows from rent and eventual sale of the property. The IRR is the discount rate at which the NPV of the investment is equal to zero. There are many ways to calculate IRR, from simple spreadsheet functions to more complex financial modeling software. It\'s worth noting that IRR can be a bit tricky when it comes to projects that don\'t have a consistent cash flow over time. These types of investments are known as \"irregular cash flow\" and the IRR might be misleading or not suitable to calculate. There are other metrics to evaluate these investments such as Modified Internal Rate of Return (MIRR) which is a variation of IRR and is used to get more accurate results.
Students also viewed these Finance questions
-
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...
-
The Bolster Company is considering two mutually exclusive projects: The required rate of return on these projects is 10 percent. a.What is each project's payback period? b.What is each project's net...
-
The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of $50 million on a large-scale, integrated plant which will provide an...
-
A recent PwC Supply Global Chain survey indicated that companies that acknowledge the supply chain as a strategic asset achieve 70% higher performance. The Leaders in the survey point to...
-
On January 1, 2015, Sturge Enterprises Inc. held the following debt and equity investments: During the year, Sturge made the following purchases: There were no differences between cost and fair value...
-
In what sense are you powered by solar energy?
-
Names over Time The website http://www.visualcinnamon.com/babynamesus gives a spaghetti plot showing the popularity of the top 10 baby names for each year 1880 to 2014 (use the window scroller at the...
-
What if Johns neighbor made his promise to help reassemble the garage at the time he and John were moving it to Johns property, saying, Since you helped me take it down, I will help you put it back...
-
Suppose that a bushel of wool could be traded for a barrel of wine, one-for-one, on the international market. Draw a diagram illustrating the original situation, and this new situation, with wool on...
-
The Harvey Motorcycle Company produces three models: the Tiger, a sure-looted dirt bike; the LX2000, a nimble cafe racer: and the Golden, a large interstate tourer. This months master production...
-
Rieger International is attempting to evaluate the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the...
-
Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following...
-
Suppose the daily demand function for pizza in Berkeley is Qd = 3,500 - 100P. The variable cost of making Q pizzas per day is VC (Q) = 3Q + 0.01Q2 and there is a $100 fixed cost (which is avoidable...
-
Explain different types of the efficiency of the centrifugal pump.
-
Derive an equation for air standard efficiency of Otto cycle.
-
Derive an expression for the efficiency of Otto cycle.
-
Give advantages of two-stroke engine over four stroke engine.
-
What is the centrifugal pump? How is it different from Francis turbine?
-
Recruitment is linked to other practices. If it is difficult to recruit the desired volume of people, or the desired competencies and qualities needed: What reasons might there be for not being able...
-
Michelles trust is subject to 3.8% surtax on the lesser of the trusts net investment income or the excess of the trusts adjusted gross income over the $12,400 threshold (the highest trust tax rate)....
-
Your parents are considering a 30-year mortgage that charges 0.5% interest each month. Formulate a model in terms of a monthly payment p that allows the mortgage (loan) to be paid off after 360...
-
Pavlovich Instruments Inc., a maker of precision telescopes, expects to report pretax income of $430,000 this year. The companys financial manager is considering the timing of a purchase of new...
-
Consider the following balance sheets and selected data from the income statement of Keith Corporation. a. Calculate the firms net operating profit after taxes (NOPAT) for the year ended December 31,...
-
Consider the following balance sheets and selected data from the income statement of Keith Corporation. a. Calculate the firms net operating profit after taxes (NOPAT) for the year ended December 31,...
-
An ideal gas is taken through a quasi-static process described by P = aV2, with a = 2.25 atm/m6, as shown in the figure. The gas is expanded to twice its original volume of 1.00 m. How much work is...
-
Post your thoughts and reflections about the article on the Congo. You may want to discuss a certain aspect of the program or something that caught your attention. Perhaps you can relate it to your...
-
Analysis on Apple Computer, and additional research, describe what SCM strategies Apple applies, including the use of Apple Stores, and if they can stand the test of time/competition in SCM?
Study smarter with the SolutionInn App