3.300, 000 in year 1: 31,900,000 in year 2; $1,700,000 in year a) $1,700,000 b)
ID: 2801108 • Letter: 3
Question
3.300, 000 in year 1: 31,900,000 in year 2; $1,700,000 in year a) $1,700,000 b) 5371,764 9-$137.053 $4,862,947 7) A firm is evaluating three independent capital budgeting projects. The net present value of each project is shown below Given this information, which project(s) should the firm accept? Project NP $10 mill accept Projects I and 2, and reject Project3 b) accept Projects 1 and 3, and reject Project 2 c) accept Project 3, and reject Projects 1 and 2 d) accept all projects 8) What is the profitability index of a project that requires an initial investment of $600,000, after-tax cash $250,000 per year for 3 years, and a cost of capital of 10% APR? Profitability Index-(NPVnitial Investment) a) 0.04% b) 21.71% 3.62% 25% 9) What is the IRR of the foll operating cash inflows of S1,800,000 in year 1; $1,900,000 in year 2; $1,700,000 in year owing project, if its initial after-tax cost is $5,000,000 and it is expected to provide after-tax 3, and $1,300,000 in year 4? a) 15-57% b) 0.00% c) 13.57% d) 12.25% 10) A fimn with a cost of capital of 13% APR is evaluating three mutually exclusive capital budgeting projects. The IRRs of these projects are shown below. Given this information, which project(s) should the firm accept? Project IRR | 12% | 15% 13% accept Project 1 and 2, and reject Project 3 cept Project 2, and reject Projects 1 and 3 caccept Project 1, and reject Projects 2 and 3 d) accept Project 3, and reject Projects 1 and 2Explanation / Answer
7) NPV is positive for project 1 and 2 and is negative for project 3
Project with positive NPV is to be selected and hence project 1 and 2 are to be accepted and 3 to be rejected (a)
8) Profitablity index =(NPV / initial investment)* 100
PV of cash inflows = 250,000 * PVAF(10%, 3yrs)
= 250,000 * 2.487
= 621,750
PV of cash outflows = initial investment = 600,000
NPV = 621,750 - 600,000 = 21,750
PI = (21,750 / 600,000) * 100 = 3.625% (c)
(9)
IRR Is the rate at which Present value of cash inflows is equal to present value of cash outflows
Formula in excel for IRR is =IRR(VALUES) =13.57% (C)
10) for any project where IRR is greater than Ke it is profitable
Therefore project 2 to be accepted and rest to be rejected (B)
0 (5,000,000.00) 1 1,800,000.00 2 1,900,000.00 3 1,700,000.00 4 1,300,000.00 13.57%Related Questions
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