51138 question4 question4

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Unformatted text preview: d $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm’s cost of capital is 10 percent. What is the NPV for this investment? ($ 51,138) Question 4 Question 4 As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Year 0 1 2 3 4 Project X -$100,000 50,000 40,000 30,000 10,000 Project Z -$100,000 10,000 30,000 40,000 60,000 If Denver’s cost of capital is 15 percent, which project would you choose? (Neither project) Question 5 Question 5 Two projects being considered are mutually exclusive and have the following projected cash flows: Year 0 1 2 3 4 Project A -$50,000 15,625 15,625 15,625 15,625 Project B -$50,000 0 0 0 99,500 If the required rate of return on these projects is 10 percent, which would be chosen and why? (Project B because it has the higher NPV) Question 6 Question 6 Braun Industries is considering an investment project that has the following cash flows: Year 0 1 2 3 4 Cash Flow -$1,000 400 300 500 400 The company’s WACC is 10 percent. What is the project’s payback, internal rate of return (IRR), and net present value (NPV)? (Payback = 2.6, IRR = 21.22%, NPV = $260) Question 7 Question 7 Oak Furnishings is considering a project that has an up­front cost and a series of positive cash flows. The project’s estimated cash flows are summarized Year below: Cash?Flow 0 1 2 3 4 $500 million 300 million 500 million 400 million The project has a regular payback of 2.25 years. What is the project’s internal rate of return (IRR)? (30.31%) Question 8 Question 8 A project has the following net cash flows: Year 0 1 2 3 4 5 Cash Flow -$X 150 200 250 400 100 At the project’s WACC of 10 percent, the project has an NPV of $124.78. What is the project’s internal rate of return? (16.38%)...
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This document was uploaded on 01/14/2014.

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