Lopez Co. is considering three alternative investment projects below. Which project is preferred if management makes its
Question:
Lopez Co. is considering three alternative investment projects below. Which project is preferred if management makes its decision based on
(a) Payback period,
(b) Net present value, and
(c) Internal rate of return?
Project 1 Project 2 Project 3 Payback period........ Net present value .... Internal rate of return.... 3.5 years 4.0 years 3.2 years $25,000 $32,000 $18,000 12.5% 11.4% 10.8%
Step by Step Answer:
To determine the preferred investment project under each decision criterion we can analyze the infor...View the full answer
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
Students also viewed these Business questions
-
A manufacturer of cereal is considering three alternative box colors-red, yellow, and blue. To check whether such a consideration has any effect on sales, 16 stores of approximately equal size are...
-
Net Present Value Method, Internal Rate of Return Method, and Analysis.The management of Saturn Networks Inc. is considering two capital investment projects. The estimated net cash flows from each...
-
A company is considering three alternative investment projects with different net cash flows. The present value of net cash flows is calculated using Excel and the results follow. a. Compute the net...
-
An abc-sequence balanced three-phase wye-connected source supplies power to a balanced wye-connected load. The line impedance per phase is 1 + j10, and the load impedance per phase is 20 + j20. If...
-
Sixty kilograms per hour of water runs through a heat exchanger, entering as saturated liquid at 200 kPa and leaving as saturated vapor. The heat is supplied by a Carnot heat pump operating from a...
-
Using the information from S12-8, a market price of $25 per share, and 100,000 shares of common stock outstanding, compute the following for 2010: 1. Earnings per share 2. Price/earnings ratio 12-8...
-
In its 2014 annual report to shareholders, General Electric reported the following financial results: 1. Revenues increased from \($146.0\) to \($148.5\) billion. 2. Net income increased from...
-
Assume the customer has ordered 50 units of each product. Well use a process batch of 100 units and a transfer batch of one. Make a Gantt chart for each machine to show us how quickly you can ship...
-
1 1 . What are the forces that Justice Cardozo says shape the judicial process? How is the law made? In light of the liberal versus conservative divisions in the courts, are Cardozo s observations...
-
The Budgetary Comparison Schedule for the City of Vienna appears below. Several items of information are missing (denoted with "?"). CITY OF VIENNA Budgetary Comparison Schedule General Fund For the...
-
Pablo Company is considering buying a machine that will yield income of $1,950 and net cash flow of $14,950 per year for three years. The machine costs $45,000 and has an estimated $6,000 salvage...
-
Quail Co. is considering buying a food truck that will yield net cash inflows of $10,000 per year for seven years. The truck costs $50,000 and has an estimated $6,000 salvage value at the end of the...
-
(a) Write the equation for the combustion of propylene, C 3 H 6 . (b) Calculate the mass of CO 2 produced when 2.45 g C 3 H 6 burns in excess oxygen.
-
1. Analyze current and recent economic conditions. Provide a two-page (maximum) economic summary. Identify whether the economy is expanding (booming) or contracting (in recession). Justify your...
-
Using the internet, gather information about FHA, Fannie Mae, and VA loans. List some of the requirements and restrictions that must be adhered to when applying for these loans.
-
Elaine is a secretary for a business. One day a customer comes in to file a new contract while Elaine is seated at her bosss desk. The customer assumes Elaine is a person of authority, and Elaine is...
-
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Share Price # Shares X Y Z X Y Z Jan. 13, 2005 20 40 30 1000 2000 1000 Jan. 14, 2005 25 42 22 18 1000 2000 2000 *2:1 Split on Share Z after...
-
Assume that you are the job analyst at a bicycle manufacturing company in your province and have been assigned responsibility for preparing job descriptions (including specifications) for all the...
-
The following information is available for Coady's Chocolates: Actual production ............3,000 boxes Budgeted production ......3,200 boxes Direct Materials Standard ..................... 2 pounds...
-
For the following exercises, write the polynomial function that models the given situation. Consider the same rectangle of the preceding problem. Squares of 2x by 2x units are cut out of each corner....
-
Assume Research In Motion will install and service a server to link all of a customers employees smartphones to a centralized company server, for an upfront flat price. How can RIM use a job order...
-
During the current month, a company that uses a job order cost accounting system purchases $70,000 in raw materials for cash. It then uses $22,000 of raw materials indirectly as factory supplies and...
-
During the current month, a company that uses a job order cost accounting system incurred a monthly factory payroll of $120,000, paid in cash. Of this amount, $30,000 is classified as indirect labor...
-
Assume that HCA is evaluating the feasibility of building a new hospital in an area not currently served by the company. The company's analysts estimate a market beta for the hospital project of 1.1,...
-
please answer all questions in the question, there's 7 parts, thank you
-
Logistics and supply chain challenges may impact medical oxygen availability in third wave In July last year, patients in Eastern Cape hospitals were reportedly fighting over oxygen. The short supply...
Study smarter with the SolutionInn App