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3. value: 1.44 points

The following are the cash flows of two projects:

Year		Project A		Project B
0			$	260				$	260
1				140					160
2				140					160
3				140					160
4				140

If the opportunity cost of capital is 11%, what is the profitability index for each project?(Do not round intermediate calculations. Round your answers to 4 decimal places.)

Project	Profitability index
A
B

Is the project with the highest profitability index also the one with the highest NPV?

Yes

No

Chapter 8 1. value: 1.44 points The following are the cash flows of two projects: Year 0 1 2 3 4 Project A $400 230 230 230 230 Project B $400 300 300 300 a. If the opportunity cost of capital is 10%, calculate the NPV for both projects. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project A NPV $ B b. Which of these projects is worth pursuing? Project A Project B Both Neither 2. value: 1.44 points The following are the cash flows of two projects: Year 0 1 2 3 Project A $270 150 150 150 Project B $270 170 170 170 4 150 a. Calculate the NPV for both projects if the discount rate is 12%. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project NPV $ A B b. Suppose that you can choose only one of these projects. Which would you choose? Project A Project B Neither 3. value: 1.44 points The following are the cash flows of two projects: Year 0 1 2 3 4 Project A -$260 140 140 140 140 Project B -$260 160 160 160 If the opportunity cost of capital is 11%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.) Project A Profitability index B Is the project with the highest profitability index also the one with the highest NPV? Yes No 4. value: 1.44 points The following are the cash flows of two projects: Year 0 1 2 3 4 Project A $230 110 110 110 110 Project B $230 130 130 130 What is the payback period of each project? (Round your answers to 2 decimal places.) Project A Payback Period years years B 5. value: 1.44 points A project that costs $3,800 to install will provide annual cash flows of $1,200 for each of the next 6 years. Calculate the NPV if the discount rate is 12%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV $ Is this project worth pursuing? Yes No How high can the discount rate be before you would reject the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) % Discount rate 6. value: 1.44 points A new computer system will require an initial outlay of $19,000, but it will increase the firm's cash flows by $3,800 a year for each of the next 8 years. a. Calculate the NPV and decide if the system is worth installing if the required rate of return is 9%. What if it is 14%? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Rate of Return 9% 14% NPV Worth Installing $ Yes $ No b. How high can the discount rate be before you would reject the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) % Maximum discount rate Hints References eBook & Resources 7. value: 1.44 points Here are the cash flows for a project under consideration: C0 $7,660 C1 +$5,600 C2 +$19,440 a. Calculate the project's net present value for discount rates of 0, 50%, and 100%. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to the nearest whole dollar.) Discount rate Net present value $ 0% $ 50% $ 100% b. What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a whole percent.) % IRR References WorksheetLe 8. value: 1.44 points Consider projects A and B with the following cash flows: A B C0 $ 43 68 C1 +$ 27 + 37 C2 +$27 + 37 C3 +$ 27 + 37 a-1. What is the NPV of each project if the discount rate is 10%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project A B NPV $ 24.14 $ 24.14 a-2. Which project has the higher NPV? Project A Project B b-1. What is the profitability index of each project? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project Profitability index A .51 B .35 b-2. Which project has the higher profitability index? Project A Project B c-1. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects? Project A Project B c-2. Which project is most attractive to a firm that is limited in the funds it can raise? Project A Project B Both rev: 03_16_2015_ 9. value: 1.48 points Here are the expected cash flows for three projects: Project A B C Year: 0 6,200 2,200 6,200 Cash Flows (dollars) 1 2 3 +1,300 +1,300 +3,600 0 +2,200 +2,600 +1,300 +1,300 +3,600 a. What is the payback period on each of the projects? Project A Payback period years 4 0 +3,600 +5,600 years B years C b. If you use a cutoff period of 2 years, which projects would you accept? Project A Project B Project C Project A and Project B Project B and Project C Project A and Project C Projects A, B, and C None c. If you use a cutoff period of 3 years, which projects would you accept? Project A Project B Project C Project A and Project B Project B and Project C Project A and Project C Projects A, B, and C None d-1. If the opportunity cost of capital is 10%, calculate the NPV for projects A, B, and C. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Project A B C NPV $ $ $ d-2. Which projects have positive NPVs? Project A Project B Project C Project A and Project B Project B and Project C Project A and Project C Projects A, B, and C None e. "Payback gives too much weight to cash flows that occur after the cutoff date." True or false? True False