Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help me solve 4-8 Use the following table to answer questions 1 6. The wacc is 10% for all projects in this table. Year

image text in transcribedimage text in transcribed

Please help me solve 4-8

Use the following table to answer questions 1 6. The wacc is 10% for all projects in this table. Year Project A -1,000 1,000 Project B -1,000 300 400 500 600 Project C -1,000 550 450 350 250 Project D -1,000 600 800 1. Compute the Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), and Payback Period (PB) for each project: Project A Project B Project C Project D WACC 10.0% 10.0% 10.0% 10.0% NPV 2. Projects A through C are independent (ignore project D): a. Which project(s) should be selected? b. By how much should the value of the firm change given these selections? 3. Projects A through C are mutually exclusive and cannot be replicated (ignore project D): a. Which project(s) should be selected? b. By how much should the value of the firm change given these selections? 4. Projects B and C are mutually exclusive. What is the value of the cross-over rate for these two projects? 5. Projects B and D are mutually exclusive and can be replicated: a. Complete the table below: Project B Project D WACC 10.0% 10.0% Equivalent Annual Annuity Replacement Chain (RC) NPV b. Which project(s) should be selected? 6. If Projects A through D are independent, and the firm has a capital budget of $2000, then which project(s) should be selected? 7. A firm is evaluating a potential project with estimated cash flows shown below. The cost of capital is 10%. Compute the MIRR for this project and determine if the project should be accepted or rejected. Year Cash Flow -100 200 -100 400 -300 8. A project requires equipment that has a 3 year physical life. However, it may be optimal to run the project for 3 years, 2 years, 1 year, or not at all. In other words, the project may have an economic life different from its physical life. Using the Operating Cash Flow and Salvage Value estimates below, along with a 10% cost of capital, determine the Economic Life of the following project: Year Initial Investment and Operating Cash Flows (5,000) 1,600 2,500 2 ,000 End of Year Salvage Value 5,000 3,500 2,000 L2 3

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions