ZuoTi.Pro
Question

Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $450,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $425,000 Year 3 $400,000 Year 4 $450,000 Green Caterpillar Garden Supplies Inc.s weighted average cost of capital is 10%, and project Alpha has the same risk as the firms average project. Based on the cash flows, what is project Alphas net present value (NPV)? O $400,031 $1,250,031 O $1,020,037 O $850,031 Making the accept or reject decision Green Caterpillar Garden Supplies Inc.s decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should project Alpha. reject acceptBlue Pencil Publishing is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $800,000 Blue Pencil Publishing has been basing capital budgeting decisions on a projects NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Blue Pencil Publishings WACC 157%, and project Sigma has the same risk as the firms average project. The project is expected to generate the following net cash flows: Which of the following is the correct calculation of project Sigmas IRR? Year Cash Flo Year 1 $275,000 Year 2 $400,000 Year 3 $500,000 Year 4 $400,000 O 27.98% О 26.43% О 31.09% О 24.87% If this is an independent project, the IRR method states that the firm should reject project Sigma accept project Sigma If mutually exclusive projects are proposed that both have an IRR greater than the necessary WACC, the IRR method states that the firm should accept: O The project that requires the lowest initial investment, assuming that both projects have the same risk as the O The project with the greatest IRR, assuming that both projects have the same risk as the firms average O The project with the greater future cash inflows, assuming that both projects have the same risk as the firms firms average project project average projectLast Tuesday, Cute Camel Woodcraft Company lost a portion of its planning and financial data when both its main and its backup servers crashed. The companys CFO remembers that the internal rate of return (IRR) of Project Lambda is 13.2%, but he cant recall how much Cute Camel originally invested in the project nor the projects net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Lambda. They are: Year Cash Flow Year 1 $2,400,000 Year 2 $4,500,000 Year 3 $4,500,000 Year 4 $4,500,000 The CFO has asked you to compute Project Lambdas initial investment using the information currently available to you. He has offered the following suggestions and observations: A projects IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the projects IRR The level of risk exhibited by Project Lambda is the same as that exhibited by the companys average project, which means that Project Lambdas net cash flows can be discounted using Cute Camels 990 WACC. Given the data and hints, Project Lambdas initial investment is (rounded to the nearest whole dollar) , and its NPV is A projects IRR willif the projects cash inflows decrease, and everything else is unaffected. increase decrease stay the same

Don't need explanations, just comparing my answers. Thank you.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Note: As per HomeworkLib policy i have answered first 4 question for rest of question please raise new request..

4 Answer 1) ii-i*ii 6 Year Cash flow PVIF@ 10 Present value 0-4500001.0000 1 375000 0.9091 2 425000 0.8264 3 4000000.7513 445850,031 12 13 14 15 16 17 18 19 20 21 NPV Correct answer is option 850031 Answer 2) Accept Since NPV is positive Answer 3) Cash flow 0-800000 1275000 2 400000 3 500000 4400000 Year 23 24 25 26 27 28 29 30 31 32 Formula used IRR 31.09% IRR(D22:D26) Accept the project Sigma Since IRR is higher than cost of capital Answer 4)

0 0
Add a comment
Know the answer?
Add Answer to:
Don't need explanations, just comparing my answers. Thank you. Suppose Green Caterpillar Garden Supplies Inc. is...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data...

    Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Gamma is 13.2%, but he can't recall how much Green Caterpillar originally invested in the project nor the project's net present value (NPV). However, he found a note that detalled the annual net cash flows expected to be generated by Project Gamma....

  • Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that...

    Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $450,000. The project is expected to generate the following net cash flows: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 $400,000 $475,000 $475,000 Green Caterpillar Garden Supplies Inc.'s weighted average cost of capital is 9%, and project Alpha has the same risk as the firm's average project. Based on the cash flows, what is...

  • Consider the case of Green Caterpillar Garden Supplies Inc.: Last Tuesday, Green Caterpillar Garden Supplies Inc....

    Consider the case of Green Caterpillar Garden Supplies Inc.: Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Zeta is 14.6%, but he can’t recall how much Green Caterpillar originally invested in the project nor the project’s net present value (NPV). However, he found a note that detailed the annual net...

  • Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data...

    Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Zeta is 13.2%, but he can’t recall how much Green Caterpillar originally invested in the project nor the project’s net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Zeta....

  • 3. Understanding the IRR and NPV The net present value (NPV) and internal rate of return...

    3. Understanding the IRR and NPV The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company: Last Tuesday, Cute Camel Woodcraft Company lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Lambda is...

  • Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data...

    Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Zeta is 13.2%, but he can’t recall how much Green Caterpillar originally invested in the project nor the project’s net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Zeta....

  • Don't need explanations, just comparing my answers. Thank you. Fuzzy Button Clothing Company is analyzing a...

    Don't need explanations, just comparing my answers. Thank you. Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $2,500,000. The project's expected cash flows are: Year Cash Flo Year 1 $350,000 Year 2 -175,000 Year 3 400,000 Year 4 425,000 Fuzzy Button Clothing Company's WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR). О О О O 19.71% 18.68% 16.60%...

  • IRR = 13.8% Last Tuesday, Cute Camel Woodcraft Company lost a portion of its planning and...

    IRR = 13.8% Last Tuesday, Cute Camel Woodcraft Company lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Projedt Lambda is 13.8%, but he can't recall how much Cute Camel originally invested in the project nor the project's net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by...

  • The internal rate of return (IRR) refers to the compound annual rate of return that a...

    The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Blue Pencil Publishing: Consider the following case: Blue Pencil Publishing is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Blue Pencil Publishing has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the...

  • Last Tuesday, Cold Goose Metal Works Inc. lost a portion of its planning and financial data...

    Last Tuesday, Cold Goose Metal Works Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Lambda is 13.2%, but he can't recall how much Cold Goose originally invested in the project nor the project's net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Lambda....

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT