Chapter 8 1) What is the payback period for the following set of cash flows? Year Cash Flow 0 -7800 1 3100 2 3200 3 2200 4 1400 2) A firm evaluates all of its projects by applying the IRR rule. If the required rate of return is 11%, should the firm accept the following project? Year Cash Flow 0 -157,000 1 74,000 2 87,000 3 46,000 3) For the cash flows in the previous problem. Suppose the firm users. The. In PV decision rule. At the required rate return of 9%, should the firm accept this project? What if the required rate of return was 21%? 4) A Project that provides annual cashflow.$2620.00 for eight years. Cost.$9430 today. Is this a good project? If the required rate return is 8%? What if it's 24%? At what discount rate would you be indifferent between accepting the project and rejecting it? 5) What is the profitability index for the following set of cash flows? If the relevant discount rate is 10%? What if the discount rate is 15%? If it is 22%? Year Cash Flow 0 -29,000 1 16,900 2 13,600 3 8,300 6) The Windwards Corporation is trying to choose between the following two mutually exclusive projects: Year CF(I) CF(II) 0 -84,000 -29,800 1 30,600 10,500 2 36,900 17,400 3 43,700 15,600 6a) If the required rate return is 11% and the company applies the profitability index decision rule, which projects should the firm except? 6b) If the company applies the. NPV decision rule, Which project should it take? 6c) Explain why your answer in part A and Part B might be different. 7) Consider the following two mutually exclusive projects. Year CF(a) CF(B) 0 -245,000 -53,000 1 34,000 31,900 2 49,000 21,800 3 51,000 17,300 4 325,000 16,200 Whichever project you choose., if any,require a return of 13% on your investment. 7a) if you apply the payback criterion, which investment will you choose? Why? 7b ) If you apply the NPV criterion., which investment will you choose? Why? 7C ) If you apply the IRR. Criteria, which investment will you choose? Why? 7d ) If you apply the Profitability index criterion., which investment will you choose? Why? 7e) Based on your answers in part A through D. Which project will you finally choose? Why? 8) Brush Company is presented with the following two mutually exclusive projects. The required return for both projects is 15%. Year CF(a) CF(B) 0 -140,000 -359,000 1 61,500 159,300 2 73,400 168,400 3 68,100 154,800 4 40,500 110,400 8a) what is the IRR for each project? 8b) What is the NPV for each project? 8c). Which, if either, of the projects should the company accept? 9) Coore Manufacturing has the following two possible projects. The required rate of return is 12%. Year CF(a) CF(B) 0 -47,600 -81,000 1 23,900 34,000 2 18,600 32,800 3 20,700 30,500 4 14,600 27,300 9a) What is the profitability index for each project? 9b) What is the NPV for each project? 9c) Which of either, of the project, should the company accept? 10) The Yurdone Corporation wants to set up a private Cemetery business. According to the CFO, business is looking up. As a result, the Cemetery project will provide a net cash flow of $164,000 for the firm during the first year, and cash flows are projected to grow at a rate of 4.7% per year forever. The project requires an initial investment $1,825,000. 10a) if the company requires a return of 12% on such undertakings, should the Cemetery business be started? 10b) The company is somewhat unsure about the assumption of a 4.7% growth rate in its cash flow. At what constant growth rate would the company just break even? If it still required a return of 12% on its investment?