MGT 160 Homework 4

MGT 160 Homework 4 - Year Cash Flow (I) $ Cash Flow (II) $...

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MGT 160 Homework #4 Due Wednesday, October 26 th *Please see the Excel file posted in SmartSite 8.10 (260) NPV versus IRR. Framing Hanley, LLC has identified the following two mutually exclusive projects: Year Cash Flow (A) $ Cash Flow (B) $ 0 -50,000 -50,000 1 26,000 14,000 2 20,000 18,000 3 16,000 22,000 4 12,000 26,000 a. What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? b. If the required return is 11 percent, what is the NPV for each of these projects? Which project will you choose if you apply the NPV decision rule? c. Over what range of discount rates would you choose Project A? Project B? At what discount rate would you be indifferent between these two projects? Explain. 8.14 (261) Problems with Profitability Index . The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects:
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Unformatted text preview: Year Cash Flow (I) $ Cash Flow (II) $ 0 -72,000 -30,000 1 27,000 9,000 2 32,000 19,500 3 38,000 13,500 a. If the required return is 11 percent and the company applies the profitability index decision rule, which project should the firm accept? b. If the company applies the NPV decision rule, which project should it take? c. Explain why your answers in (a) and (b) are different. 8.21 (263) NPV and Payback Period . Kaleb Konstruction, Inc. has the following mutually exclusive projects available. The company has historically used a three-year cutoff for projects. The required return is 10 percent. (Continued on back) Year Project F $ Project G $ 0 -125,000 -195,000 1 65,000 45,000 2 55,000 60,000 3 55,000 85,000 4 50,000 115,000 5 45,000 130,000 a. Calculate the payback period for both projects. b. Calculate the NPV for both projects. c. Which project, if any, should the company accept?...
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This note was uploaded on 12/18/2011 for the course MGT 160 taught by Professor Staff during the Fall '08 term at UC Davis.

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MGT 160 Homework 4 - Year Cash Flow (I) $ Cash Flow (II) $...

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