You are analyzing the Photon project, which has the expected
cash flows below. The Photon project has a 4 year life (assume
"best life") and is competing against another project for funding
(the Warp project). That is, the two projects are mutually
exclusive. The Warp project has an 8 year life (assume "best life";
cash flows not provided).
You notice that the projects have lives of different lengths, so
you ask whether the Photon project can be repeated at the end of 4
years. The answer is that it can be. To adjust for the differing
lives, you decide to use the NPV replacement chain method. For your
initial analysis, you are to assume that Photon can be duplicated
exactly.
Using the replacement chain method and a discount rate of 13.2%,
compute Photon's NPV, in a way that would be appropriate to compare
to the NPV of the Warp project. Round to nearest penny.
Year 0 cash flow = -172,000
Year 1 cash flow = 71,000
Year 2 cash flow = 71,000
Year 3 cash flow = 71,000
Year 4 cash flow = 71,000
You are analyzing the Photon project, which has the expected cash flows below. The Photon project...
You are analyzing the Photon project, which has the expected cash flows below. The Photon project has a 4 year life (assume "best life") and is competing against another project for funding (the Warp project). That is, the two projects are mutually exclusive. The Warp project has an 8 year life (assume "best life"; cash flows not provided). You notice that the projects have lives of different lengths, so you ask whether the Photon project can be repeated at the...
A.) What is the payback period on Popeye's purchase of a new pleasure boat for his tourist business? The expected cash flows appear below. (note: payback is in years; round to 2 decimals) Year 0 cash flow = -9,400,000 Year 1 cash flow = 4,300,000 Year 2 cash flow = 2,400,000 Year 3 cash flow = 3,200,000 Year 4 cash flow = 2,700,000 Year 5 cash flow = 4,400,000 Year 6 cash flow = 3,800,000 B.)You are analyzing the Photon...
(Discounted payback period) Gio's Restaurants is considering a project with the following expected cash flows: Year Project Cash Flow (millions) $(210) AWNO If the project's appropriate discount rate is 11 percent, what is the project's discounted payback period? The project's discounted payback period is years. (Round to two decimal places.) (Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive projects with the following projected cash flows: Project A Project B Year Cash Flow...
4. Project S has a cost of $10,000 and is expected to produce cash flows of $3000 per year for 5 years. Project L has a cost of $25,000 and is expected to produce cash flows of $7400 for 5 years. Calculate the NPV and IRR of the two projects assuming a cost of capital of 12%. Which project would you select, assuming they are mutually exclusive, using each ranking method?
Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 20.1%. (Round...
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. The longer a project's payback period, the more desirable the project is normally considered to be by this criterion. b. One drawback of the payback criterion for evaluating projects is that this method does not properly account for the time value of money. c. If a project's payback is positive, then the project...
4. Unequal project lives Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value...
Your firm has identified three potential investment projects. The projects and their cash flows are shown here: (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Project Cash Flow Today (millions) Cash Flow in One Year (millions) A -$15 $$16 B $4 $3 C $17 −$11 Suppose all cash flows are certain and the risk-free interest rate is 6%. a. What is the NPV of each...
9. Unequal project lives Globex Corp. has to choose between two mutually exclusive projects. If it chooses project A, Globex Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value...
Suppose Omni Consumer Products's CFO is evaluating a project with the following cash inflows. She does not know the project's initial cost; however, she does know that the project's regular payback period is 2.5 years. If the project's weighted average cost of capital (WACC) is 7%, what is its NPV? Cash Flow Year $422,788 $350,000 Year 1 $330,878 Year 2 $450,000 $367,642 Year 3 $450,000 $441,170 $400,000 Year 4 Which of the following statements indicate a disadvantage of using the...