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Problem 1 Suppose a company is considering two independent projects, Project A and Project B. The cash outlay for Project A is $14,000. The cash...

This question was answered on Jun 01, 2013. View the Answer
I need problems 1 through 4 of the attached document solved (showing work).
Problem 1 Suppose a company is considering two independent projects, Project A and Project B. The cash outlay for Project A is $14,000. The cash outlay for Project B is $20,000. The company’s cost of capital is 12%. The following table shows the after-tax cash flows. For each project, compute the NPV, the IRR, the MIRR, and indicate the accept/reject decision. Year Project A Project B 1 $4800 $6700 2 $4800 $6700 3 $4800 $6700 4 $4800 $6700 Problem 2 Suppose a company is considering two investment projects. Both projects require an upfront expenditure of $30 million. The company estimates that the cost of capital is 10% and that the investments will result in the following after-tax cash flows (in millions of dollars). Complete parts (a) through (e) below. Year Project A Project B 1 $28 $10 2 $20 $15 3 $10 $20 4 $5 $25 a) Find the regular payback period for each project. b) Find the discounted payback period for each project. c) Assume that the two projects are independent and the cost of capital is 10%. Which project or projects should the company undertake? Base your results on the NPV. d) Assume that the two projects are mutually exclusive and the cost of capital is 5%. Which project or projects should the company undertake? Base your results on the MIRR. e) Explain why quantitative measures may not always be the best way to evaluate a project. Problem 3 A company is planning an expansion. The initial investment is $480,000 and anticipates cash inflows as listed below. The cost of capital is 12.2%. What is the profitability index and should the firm go ahead with the project? Years Cash Inflows 1 $90,000 2 105,000 3 105,000 4 195,000 5 195,000
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6 195,000 Problem 4 Last month, a company decided to accept the project whose cash flows are shown below. However, before actually starting the project, the Federal Reserve took actions that lowered interest rates and therefore the firm’s WACC. By how much did the change in the WACC affect the project's forecasted NPV? That is, find the ΔNPV resulting from the Federal Reserve actions. New WACC = 8% Old WACC = 11% Year Cash Flows 0 -$1,000 1 500 2 500 3 500 Problem 5 A project requires a net investment of $450,000. It has a profitability index of 1.25 based on the firm's 12 percent cost of capital. Determine the net present value of the project. PV = 1.25*450,000 = 562,500 NPV = 562,500 - 450,000 = $112,500
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Solutions to assignment of lg1275 (June 2).xlsx

Solutions to assignment of lg1275 (June 2)
Problem 1
1) Year
0
1
2
3
4
NPV @ 12% Cash flow
Project A
Project B
($ 14,000)
($ 20,000)
4,800
6,700
4,800
6,700
4,800
6,700
4,800
6,700
$ 579
$ 350...

This question was asked on May 28, 2013 and answered on Jun 01, 2013.

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