Homework Answers
Ans. There is no doubt that the Cost Benefit Analysis would be best for this purpose. This is because this Analysis helps us in knowing the total Benefit that would be generated out of the project and the associated costs. Whereas net present value just tells us the profitability of the project and we all know that government is not formed to earn profit but to maximise the welfare with minimal costs.
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8. Suppose the provincial government must decide between two mutually exclusive projects. Which indicator is best...
If a company must choose between two mutually exclusive investment projects, the best general method to...
If a company must choose between two mutually exclusive investment projects, the best general method to employ for decision-making purposes is: Cash-flow bailout Cash-flow break-even Net Present value (NPV) Discounted payback Accounting (book) rate of return, based on average investment over the life of each project The profitability index (PI) is calculated as: Net present value (NPV) divided by average investment New present value (NPV) divided by initial investment Average investment divided by net present value (NPV) Initial investment divided...
15. Comparing Mutually Exclusive Projects Hagar Industrial Systems Company (HISCE ing to decide between two different...
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Net present value: is the best method of analyzing mutually exclusive projects. is less useful than...
Net present value: is the best method of analyzing mutually exclusive projects. is less useful than the internal rate of return when comparing different sized projects. is the easiest method of evaluation for non-financial managers to use. is less useful than the profitability index when comparing mutually exclusive projects. is very similar in its methodology to the average accounting return.
Suppose that your firm is considering the following two mutually exclusive projects. Both projects have the...
Suppose that your firm is considering the following two mutually exclusive projects. Both projects have the same initial cost of $312,500 and the resulting annual cash flows for the first five years are as shown in the table below: Year Alpha Beta 0 $ (312,500) $ (312,500) 1 375,000 28,935 2 46,875 80,376 3 15,625 99,229 4 15,625 160,788 5 3,125 191,414 It is your job to analyze the feasibility of these two projects and to make recommendations as to...
The final decision on which one of two mutually exclusive projects to accept ultimately depends upon...
The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following? a) length of each projects life b) initial cost of each project c) net present value d) total cash inflows of each project e) timing of the cash inflows
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,000 0.2 $0 0.6 $6,500 0.6 $6,500 0.2 $7,000 0.2 $18,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%. The...
CVA = The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750...
CVA =
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions Project A Probability Cash Flows Probability Cash Flows Project EB 0.2 0.6 0.2 $6,000 $6,750 $7,500 0.2 0.6 0.2 $0 $6,750 $18,000 BPC has decided to evaluate the riskier project at 12% and the less-risky project at...
You are considering the following two projects which are mutually exclusive. The required return on each...
You are considering the following two projects which are mutually exclusive. The required return on each project is 14%. Which project should you accept and what is the best reason for that decision? Group of answer choices Both Project A and B since they both have positive NPV Project A, because it has the higher profitability index Project A, because it has the higher net present value Project B, because it has the higher net present value O-NM Project A...
NPVs and IRRs for Mutually Exclusive Projects Davis Industries must choose between a gas-powered and an...
NPVs and IRRs for Mutually Exclusive Projects Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $23,000, whereas the gas-powered truck will cost $17,100. The cost of capital that applies to both investments is 11%. The...
Suppose you are faced with choosing between two mutually exclusive projects. Your boss asked you to...
Suppose you are faced with choosing between two mutually exclusive projects. Your boss asked you to use the Replacement Chain method. The first project offers cash flows of $15,000 in years one and two, and $20,000 in years three, four, and five. It has an initial cost of $25,000. The second project offers cash flows of $25,000 per year for four years, and then $45,000 per year for six additional years (total project life of 10 years). It has an...
15. Comparing Mutually Exclusive Projects Hagar Industrial Systems Company (HISCE ing to decide between two different conveyor belt systems. System A costs $265,000. hasa 4-year life, and requires $73.000 in pretax annual operating costs. System B costs $380.000 has a 6-year life, and requires $64.000 in prelax annual operating costs. Both systems to be depreciated straight line to zero over their lives and will have zero salvage value Whichever system is chosen, it will not be replaced when it wears...
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $6,000 0.2 $0 0.6 $6,500 0.6 $6,500 0.2 $7,000 0.2 $18,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%. The...
CVA =
The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions Project A Probability Cash Flows Probability Cash Flows Project EB 0.2 0.6 0.2 $6,000 $6,750 $7,500 0.2 0.6 0.2 $0 $6,750 $18,000 BPC has decided to evaluate the riskier project at 12% and the less-risky project at...
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