A company is trying to determine which projects to fund. Since the firm does not have the capital budget to fund all the projects, rank each by IRR. If the firm’s capital budget is $75,000, which projects will be funded? What will the firm’s MARR be?
Homework Answers
We need to find IRR for each alternative using RATE function in Excel, then arrange alternatives in increasing values of IRR,
In second step we need to find cumulative investment when an investment is done in serial order from alternative with highest IRR to the alternative with decreasing IRR
| Projects | N | First Cost | Annual Benefits | Salvage value | IRR | Cumulative investment |
| 1 | 10 | 10000 | 2500 | 0 | 21.4% | 10000 |
| 7 | 10 | 20000 | 4200 | 10000 | 19.0% | 30000 |
| 6 | 15 | 25000 | 5000 | 3000 | 18.6% | 55000 |
| 2 | 10 | 20000 | 3500 | 5000 | 13.5% | 75000 |
| 3 | 20 | 30000 | 3600 | 3000 | 10.5% | 105000 |
| 4 | 20 | 40000 | 4500 | 10000 | 9.9% | 145000 |
| 5 | 15 | 35000 | 4000 | 5000 | 8.4% | 180000 |
So the firm will invest in Projects 1, 7, 6 & 2
MARR = 13.5%
Showing formula in Excel
| Projects | N | First Cost | Annual Benefits | Salvage value | IRR | Cumulative investment |
| 1 | 10 | 10000 | 2500 | 0 | =RATE(B2,D2,-C2,E2) | =10000 |
| 7 | 10 | 20000 | 4200 | 10000 | =RATE(B3,D3,-C3,E3) | =G2+C3 |
| 6 | 15 | 25000 | 5000 | 3000 | =RATE(B4,D4,-C4,E4) | =G3+C4 |
| 2 | 10 | 20000 | 3500 | 5000 | =RATE(B5,D5,-C5,E5) | =G4+C5 |
| 3 | 20 | 30000 | 3600 | 3000 | =RATE(B6,D6,-C6,E6) | =G5+C6 |
| 4 | 20 | 40000 | 4500 | 10000 | =RATE(B7,D7,-C7,E7) | =G6+C7 |
| 5 | 15 | 35000 | 4000 | 5000 | =RATE(B8,D8,-C8,E8) | =G7+C8 |
Add Answer to:
A company is trying to determine which projects to fund. Since
the firm does not have...
(a) What would the company’s budget need to be to fund all 7 projects? (b) What...
(a) What would the company’s budget need to be to fund all 7
projects?
(b) What projects would be funded if the company could get a
return on its money of 15% through other means?
(c) What other, non-financial factors, might lead the company to
decide to fund one or more of the projects with lower rates of
return?
Project $0 N (years) First Cost $10,000 $20,000 $30,000 $40,000 $35,000 $25,000 $20,000 Annual Benefits Salvage Value $2,500 $3,500 $5,000 $3,600...
(20 points). A company is considering 4 possible machines for use in a production facility. The...
(20 points). A company is considering 4 possible machines for use in a production facility. The costs and benefits of each option are shown below. (a) If the company's MARR is 10%, use the incremental IRR method to determine which option they should choose. (b) If the company's MARR is 10%, determine the capital recovery for option A only. Initial Investment $12,000 $15,000 $18,000 $20,000 Annual Revenue Annual Expenses Salvage Value Life (in years) IRR $6,000 $3,000 $7,500 $4,500 $6,000...
Option #1: Capital Rationing Table with Cash Flows for 5 projects. Project A Project B Project...
Option #1: Capital Rationing Table with Cash Flows for 5 projects. Project A Project B Project C Project D Project E Initial Investment -$100,000 -$25,000 -$40,000 -$10,000 -$150,000 Year 1 $50,000 $15,000 $20,000 $7,000 $100,000 Year 2 $40,000 $10,000 $15,000 $4,000 $25,000 Year 3 $20,000 $5,000 $5,000 $2,000 $10,000 Year 4 $10,000 $1,000 $5,000 $1,000 $10,000 Year 5 $1,000 $10,000 Year 6 $1,000 $10,000 Calculate the IRR for each of the projects presented. Rank the projects based on their IRR....
Suppose you are the financial manager of a firm considering the following five projects. Project A...
Suppose you are the financial manager of a firm considering the following five projects. Project A Project B Project C Project D Project E Initial Investment -$10,000 -$15,000 -$14,000 -$6,000 -$1,500 Year 1 $5,000 $5,000 $6,000 $4,000 $1,000 Year 2 $4,000 $5,000 $4,000 $2,000 $250 Year 3 $2,000 $5,000 $3,500 $2,000 $100 Year 4 $1,000 $5,000 $2,500 $2,000 $100 Year 5 $5,000 $2,000 $100 Year 6 $2,000 $100 Calculate the Payback Period for each project. Calculate the NPV for each...
please show work for how to solve! 1. Consider the following three, mutually exclusive, projects. 1a....
please show work for how to solve!
1. Consider the following three, mutually exclusive, projects. 1a. Using a benefit to cost ratio (BC) approach, choose the best project using a MARR of 9% and a project lifetime of each of 10 years. Your work must be shown for full credit. 40 points Initial Investment Annual Benefits (Income) Annual Cost (Maintenance) Salvage Value Project A $16,000 $3,500 $750 $2,930 Project B $13,000 $2,500 $400 $1,900 Project C $24,500 $4,500 $900 $1,780...
i just need final answers please. Which of the computational methods do we use to find...
i just need final answers please.
Which of the computational methods do we use to find the incremental IRR of the given projects and which of the two projects is preferred by IRR with the given MARR? A n 0 ($8,000) ($11,000) 1 $300 $600 2 $%4,000 $5,000 3 $%2,600 $4,200 4 $%2,800 $3,800 $1,500 $2,000 5 MARR-11% А-В, А B-A, B B-A,A А-В, В What is the profitability index ratio for the incremental analysis between the two projects and...
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3a, b and c please help 3. (30pt) A company considers the following 4 projects: Project...
3a, b and c please help
3. (30pt) A company considers the following 4 projects: Project Capital Investment in year 0$10,000$6,000 A В С D $4,000 $8,000 -$2,000 $5,000 $1,600 $1,300$1,500 $4,000 $5,000 $8,000 $1,200 Net Cash Flow in 1 year Net Cash Flow in year 2 $4,000 $8,000 $10,200 Net Cash Flow in year The MARR is 10% per year. The company has a $20,000 budget for the capital investment in year 0. a) (10pt) Find NPV8 of 4...
1.) Projects A and B both have 5 years of life. The initial investments and cash...
1.) Projects A and B both have 5 years of life. The initial
investments and cash flows from these two projects are shown
below.
Year
0
1
2
3
4
5
Project A
-12,300
4,500
4,000
3,500
3,000
2,500
Project B
-15,000
6,000
5,000
4,000
3,200
2,400
A.) Use Data Table tool to find the NPVs of both projects when
the discount rate is 10%.
B.) Use Data Table tool to find the IRRs of both projects
C.) Plot the...
Use Excel. AEW-UEL Your company have three mutually exclusive projects which are explained in the table...
Use Excel.
AEW-UEL Your company have three mutually exclusive projects which are explained in the table below. You are an engineer and your supervisor asks for your opinion. What is your recommendation and why? What project(s) would you recommend? Initial Investment Annual savings salvage value project life MARR Project A $ 15,000 $ 2,050 $ 3,000 Project B $ 10,000 $ 1,900 $ 2,300 5 6% Project C $ 11,000 $ 1,000 $ 5,000 15 6%| 6%
(a) What would the company’s budget need to be to fund all 7
projects?
(b) What projects would be funded if the company could get a
return on its money of 15% through other means?
(c) What other, non-financial factors, might lead the company to
decide to fund one or more of the projects with lower rates of
return?
Project $0 N (years) First Cost $10,000 $20,000 $30,000 $40,000 $35,000 $25,000 $20,000 Annual Benefits Salvage Value $2,500 $3,500 $5,000 $3,600...
(20 points). A company is considering 4 possible machines for use in a production facility. The costs and benefits of each option are shown below. (a) If the company's MARR is 10%, use the incremental IRR method to determine which option they should choose. (b) If the company's MARR is 10%, determine the capital recovery for option A only. Initial Investment $12,000 $15,000 $18,000 $20,000 Annual Revenue Annual Expenses Salvage Value Life (in years) IRR $6,000 $3,000 $7,500 $4,500 $6,000...
please show work for how to solve!
1. Consider the following three, mutually exclusive, projects. 1a. Using a benefit to cost ratio (BC) approach, choose the best project using a MARR of 9% and a project lifetime of each of 10 years. Your work must be shown for full credit. 40 points Initial Investment Annual Benefits (Income) Annual Cost (Maintenance) Salvage Value Project A $16,000 $3,500 $750 $2,930 Project B $13,000 $2,500 $400 $1,900 Project C $24,500 $4,500 $900 $1,780...
i just need final answers please.
Which of the computational methods do we use to find the incremental IRR of the given projects and which of the two projects is preferred by IRR with the given MARR? A n 0 ($8,000) ($11,000) 1 $300 $600 2 $%4,000 $5,000 3 $%2,600 $4,200 4 $%2,800 $3,800 $1,500 $2,000 5 MARR-11% А-В, А B-A, B B-A,A А-В, В What is the profitability index ratio for the incremental analysis between the two projects and...
You have just been hired to analyze the following projects for a start-up company. The CEO of your company has asked you to rank the projects and recommend the four best that the company should accept. In this assignment, only the quantitative considerations are relevant. No other project characteristics are deciding factors in the selection. All projects are believed to similarly risky. The firms' weighted average cost of capital has never been estimated. In the past, analysts have simply assumed...
3a, b and c please help
3. (30pt) A company considers the following 4 projects: Project Capital Investment in year 0$10,000$6,000 A В С D $4,000 $8,000 -$2,000 $5,000 $1,600 $1,300$1,500 $4,000 $5,000 $8,000 $1,200 Net Cash Flow in 1 year Net Cash Flow in year 2 $4,000 $8,000 $10,200 Net Cash Flow in year The MARR is 10% per year. The company has a $20,000 budget for the capital investment in year 0. a) (10pt) Find NPV8 of 4...
1.) Projects A and B both have 5 years of life. The initial
investments and cash flows from these two projects are shown
below.
Year
0
1
2
3
4
5
Project A
-12,300
4,500
4,000
3,500
3,000
2,500
Project B
-15,000
6,000
5,000
4,000
3,200
2,400
A.) Use Data Table tool to find the NPVs of both projects when
the discount rate is 10%.
B.) Use Data Table tool to find the IRRs of both projects
C.) Plot the...
Use Excel.
AEW-UEL Your company have three mutually exclusive projects which are explained in the table below. You are an engineer and your supervisor asks for your opinion. What is your recommendation and why? What project(s) would you recommend? Initial Investment Annual savings salvage value project life MARR Project A $ 15,000 $ 2,050 $ 3,000 Project B $ 10,000 $ 1,900 $ 2,300 5 6% Project C $ 11,000 $ 1,000 $ 5,000 15 6%| 6%
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