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There is a project whose cash flows are shown below.
Before the investor decided to accept or reject the project,
interest rates are changed, and thus, the cost of capital
(r) is also changed.
The change in the interest rate did not affect the forecasted
cash flows.
By how much did the change in the r affect the
project's forecasted NPV?
Note that a project's expected NPV can be negative, in which
case it should be rejected.
Old r:
8.00%...
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Murray Inc. is considering Projects S and L, whose cash flows
are shown below. These projects are mutually exclusive, equally
risky, and not repeatable. The CEO wants to use the IRR criterion,
while the CFO favors the NPV method. You were hired to advise
Murray on the best procedure. If the wrong decision criterion is
used, how much potential value would Murray lose?
r.
6.00%
Year
0
1
2
3
4
CFS
−$1,025
$380
$380
$380
$380
CFL
−$2,150
$765...
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Stalwork Enterprises is considering Projects Land M, whose cash flows are as follows: Project L cash flows will be -$1,025, $380, $380, $380, $380. Project M cash flows will be -$2,150, $765, $765, $765, $765. The CEO wants to use the IRR criterion, while the CFO favors the NPR method. You were hired to advise the firm on the best method. If the wrong decision criterion is used, how much potential value would the firm lose? A) $214.44 B) $186.47...
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A firm is considering Projects S and L, whose cash flows are
shown below. These projects are mutually exclusive, equally risky,
and not repeatable. The CEO wants to use the IRR criterion, while
the CFO favors the NPV method. You were hired to advise the firm on
the best procedure. If the wrong decision criterion is used, how
much potential value would the firm lose?
WACC:
6.75%
0
1
2
3
4
CFS
-$1,025
$380
$380
$380
$380
CFL
-$2,150...
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Question 14:
A firm is considering Projects S and L, whose cash flows are
shown below. These projects are mutually exclusive, equally risky,
and not repeatable.
r:
6.00%
Year
0
1
2
3
4
CFS
−$1,025
$380
$380
$380
$380
CFL
−$2,150
$765
$765
$765
$765
The CEO wants to use the IRR criterion, while the CFO favors the
NPV method.
You were hired to advise on the best procedure. If the wrong
decision criterion is used, how much potential...
-
A firm is considering Projects S and L, whose cash flows are
shown below. These projects are mutually exclusive, equally risky,
and not repeatable. The CEO wants to use the IRR criterion, while
the CFO favors the NPV method. You were hired to advise the firm on
the best procedure. If the wrong decision criterion is used, how
much potential value would the firm lose?
WACC:
6.75%
0
1
2
3
4
CFS
-$1,025
$380
$380
$380
$380
CFL
-$2,150...
-
Nichols Inc. is considering a project that has the following
cash flow data. What is the project's IRR? Note that a project's
IRR can be less than the cost of capital or negative, in both cases
it will be rejected.
Year
0
1
2
3
4
5
Cash flows
−$1,250
$325
$325
$325
$325
$325
a. 10.92%
b. 9.43%
c. 11.47%
d. 10.40%
e. 9.91%
Westwood Painting Co. is considering a project that has the
following cash flow and cost...
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If an independent project with conventional, or normal, cash flows is being analyzed, the net present value (NPV) and internal rate of return (IRR) methods agree. Projects W and X are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. NPV (Dollars) 800 0 -$1,00 Year Project W -$1,000 1 $200 2 $350 $400 $600 Project x -$1,500 $350 $500 $600 $750 Project X Project W If the weighted average cost of capital (WACC) for each...
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The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $500,000. The project's expected cash flows are: Year Year 1...
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Rivoli Inc. hired you as a consultant to help estimate its cost
of capital. You have been provided with the following data: D0 =
$0.80; P0 = $77.50; and g = 8.00% (constant). Based on the DCF
approach, what is the cost of equity from retained earnings?
Group of answer choices
8.66%
7.20%
10.12%
9.11%
10.30%
Malholtra Inc. is considering a project that has the following
cash flow and WACC data. What is the project's MIRR? Note that a
project's...