AaBbceDdEe Aabbccdec u AaBbccdee AaBbCcDc Aabbccdet Aabel Abode AaB No Spacing Heading 1 Heading 2 Heading 3 Heading 4 Title # x x Ave A E Normal Subtitle Styles Pane Sue has another vexing problem she has been encountering with regard to capital investments. She has competing investments and has looked at them from several different perspectives and would like your input. Scenario Steps to Completion 8. Two of the company's projects A and B have the same expected lives and initial cash outflows. However, one project's cash flows are larger in the early years, while the other project has larger cash flows in the later years. The two NPV profiles are given below: NPV Which of the following statements is most correct? Project A has the smaller cash flows in the later years. Project A has the larger cash flows in the later years. We require information on the cost of capital in order to determine which project has larger early cash flows. The NPV profile graph is inconsistent with the statement made in the problem. AaBbcDdEe AabbccDdte AaBbccc AabhccDdEt AaBb c Normal No Spacing Heading 1 Heading 2 Heading 3 Acabocode AaBb Heading 4 Title AaBbcc de Subtitle La # x x Al A E v Styles Pane None of the statements above is correct. Explain and support your position. Concept Check: NPV profile is the result of mapping the relationship between an investment's NPV and various discount rates. We begin at the rof zero on the Y axis. Helpful Hint: It may help to place some numbers on the lines beginning with known variables. 9.) Sue has asked you to analyze the company's glass division which has a cost of capital equal to 10%. If the following projects are mutually exclusive, and you only have the information that is provided, which should you accept? Payback (years) IRR 18% 20% 20% 12% NPV (Millions) $40 $100 Justify your answer. What does the condition "mutually exclusive" mean? Why would the Division's cost of capital be different than the company's overall weighted cost of capital calculated in task 67 Concept Check: Every organization is faced with multiple opportunities and limited resources. Management must develop systems to logically and Impartially examine these options and allocate capital and other resources for the best outcome overall so the organization can expand within the limits of their mission. Helpful Hint: Many financial models and rules are established to help managers determine best resource allocations. Just like any system, the variables or models can be manipulated to determine an outcome. There should be more than one way to analyze different opportunities and the variables used to measure efficiency need to be constantly monitored for relevancy and accuracy. AaBbceDdEe Aabbccdec u AaBbccdee AaBbCcDc Aabbccdet Aabel Abode AaB No Spacing Heading 1 Heading 2 Heading 3 Heading 4 Title # x x Ave A E Normal Subtitle Styles Pane Sue has another vexing problem she has been encountering with regard to capital investments. She has competing investments and has looked at them from several different perspectives and would like your input. Scenario Steps to Completion 8. Two of the company's projects A and B have the same expected lives and initial cash outflows. However, one project's cash flows are larger in the early years, while the other project has larger cash flows in the later years. The two NPV profiles are given below: NPV Which of the following statements is most correct? Project A has the smaller cash flows in the later years. Project A has the larger cash flows in the later years. We require information on the cost of capital in order to determine which project has larger early cash flows. The NPV profile graph is inconsistent with the statement made in the problem. AaBbcDdEe AabbccDdte AaBbccc AabhccDdEt AaBb c Normal No Spacing Heading 1 Heading 2 Heading 3 Acabocode AaBb Heading 4 Title AaBbcc de Subtitle La # x x Al A E v Styles Pane None of the statements above is correct. Explain and support your position. Concept Check: NPV profile is the result of mapping the relationship between an investment's NPV and various discount rates. We begin at the rof zero on the Y axis. Helpful Hint: It may help to place some numbers on the lines beginning with known variables. 9.) Sue has asked you to analyze the company's glass division which has a cost of capital equal to 10%. If the following projects are mutually exclusive, and you only have the information that is provided, which should you accept? Payback (years) IRR 18% 20% 20% 12% NPV (Millions) $40 $100 Justify your answer. What does the condition "mutually exclusive" mean? Why would the Division's cost of capital be different than the company's overall weighted cost of capital calculated in task 67 Concept Check: Every organization is faced with multiple opportunities and limited resources. Management must develop systems to logically and Impartially examine these options and allocate capital and other resources for the best outcome overall so the organization can expand within the limits of their mission. Helpful Hint: Many financial models and rules are established to help managers determine best resource allocations. Just like any system, the variables or models can be manipulated to determine an outcome. There should be more than one way to analyze different opportunities and the variables used to measure efficiency need to be constantly monitored for relevancy and accuracy