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
You are considering the following two projects which are mutually exclusive. The required return on each...
Bernie’s Restaurants is considering two mutually exclusive projects having the cash flow streams shown in the table below. Compute the net present value (NPV) for both projects using a 15% required rate of return. Compute the internal rate of return (IRR) for both projects. Compute the profitability index for both projects. Which project should Bernie’s business accept and why? Bernie’s Restaurants Capital Budgeting Projects Year Project A Net Cash Flow Project B Net Cash Flow 0 -$ 90,000 -$100,000 1...
Bernie’s Restaurants is considering two mutually exclusive projects having the cash flow streams shown in the table below. Compute the net present value (NPV) for both projects using a 15% required rate of return. Compute the internal rate of return (IRR) for both projects. Compute the profitability index for both projects. Which project should Bernie’s business accept and why? Bernie’s Restaurants Capital Budgeting Projects Year Project A Net Cash Flow Project B Net Cash Flow 0 -$ 90,000 -$100,000 1...
3. You are considering the following two mutually exclusive projects. The crossover point (the discount rate at which the two projects have the same NPV) is_ percent. (Note: Trial and error may be the fastest and easiest way to find the correct answer) Year Project A Project B O -$32,000 -$32,000 18,000 12,000 13,000 13,000 9,000 16,000 7.7.86% b.7.92% c. 8.01% d. 8.12% e. 8.35%
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...
You are considering the following two mutually exclusive projects. The required rate of return is 10.75 percent for project A and 12 percent for project B. Which project should you accept and why? Project A -36,000 21,600 18,200 22,100 Project B -69,900 52,600 46,100 Year 1 2 3 0 Project B; because it has the largest total cash inflow Project A; because its NPV is about $796 more than the NPV of Project B Project B; because it returns all...
The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) 0 –$ 88,000 –$ 56,000 1 37,900 11,400 2 48,000 35,500 3 28,000 29,500 a. If the required return is 11 percent, what is the profitability index for each project? Profitability index Project I Project II If the required return is 11 percent and the company applies the profitability index decision rule, which project should the firm accept...
You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. Year Project A Project B 0 -$87,000 -$85,000 1 31,000 15,000 2 37,000 20,000 3 44,000 90,000 Required rate of return for Project A is 9%, and required rate of return for Project B is 14%. Should you accept or reject these projects based on net...
You are trying to determine which of two none mutually exclusive projects to undertake. Project Adam has an initial outlay of $10,000, an NPV of $4,392.15, an IRR of 1 1.33%, and an EAA of $1,158.64. Project Eve has an initial outlay of $15,000, an NPV of $5,833.73, an IRR of 9.88%, and an EAA of $1 0 3.50 The cost of capital for both projects is 9%, and the prolects have different lives. If the projects are not repeatable,...
6) A firm is evaluating three mutually exclusive capital budgeting projects. The net present value of each project is shown below. Given this information, which project() should the firm accept? Project 1 100,000 NPV, S Project 2 10,000 Project 3 - 100,000 a) accept Projects 1 and 2, and reject Project 3 b) accept Projects 1 and 3, and reject Project 2 c) accept Project 3, and reject Projects 1 and 2 d) accept Project 1, and reject Projects 2...
Newfoundland Vintners Co-operative is considering two mutually exclusive projects: Absinth and Brandy. Project Absinth requires a $20,000 cash outlay today and is expected to generate after-tax cash flows of $11,000 in year 1, $8,500 in year 2, and $7,500 in year 3. Project Brandy requires a $30,000 cash outlay today and is expected to generate after-tax cash flows of $7,000 in year 1, $9,000 in year 2, $11,000 in year 3, and $16,000 in year 4. Neither project can be...