Problem 1

IRR-Mutually exclusive project Bell Manufacturing is attempting to choose the better for two mutually exclusive projects for expanding the firms warehouse capacity. The relevant cash flows for the projects are shown in the following table. The firms cost of capital is 17%

Project X-$500,000 Project Y $320,000

Initial investment

Year cash inflow

1 $120,000 120,000

2 $140,000 $130,000

3 $170,000 $95,000

4 $210,000 $80,000

5 $250,000 $50,000

A) Calculate the IRR for each of the project. Assess the acceptability of each project on the basis of the IRRs

B) Which project is preferred?

The internal rate of return (IRR) of project X is ___%

Is project X acceptable on the basis of IRR?

No or Yes

The internal rate of return (IRR) of project Y is ___%

Is project Y acceptable on the basis of IRR?

No or Yes

B) which project is preferred?

A. Project X

B. Project Y

C. Neither

Problem 2

NPV and maximum return A firm can purchase new equipment for a $15,000 initial investment generates an annual after tax cash inflow of $4,000 for 6 years.

Determine the net present value (NPV) of the asset, assuming that the firm has a cost of capital of 14%

Determine the maximum required rate of return that the firm can have and still accept the asset

A The net present value (NPV) of the new equipment is $_____

Based on its NPV is that new equipment acceptable?

Yes or no

B. the maximum required rate of return the firms can have and still accept like new equipment is ___%

Problem 3

NPV and EVA a project cost $1.4 million up front and will generate cash flows in perpetuity of $220,000. The firms cost of capital is 14%

Calculate the proejcts NPV

Cacluate the annual EVA in a typical year

Calculate the overall project EVA

The projects NPV is $____

The annual project EVA in a typical year is $____

The overall project EVA is $____

Problem 4

Net present value Using a cost of capital of 14% calculate the net present value for the project shown in the following table and indicate whether it is acceptable.

Initial Investment 390,000

Year cash inflow

1 $80,000

2 $80,000

3 $80,000

4 $80,000

5 $80,000

6 $80,000

7 $80,000

8 $80,000

9 $80,000

10 $80,000

The net present value (NPV) of the project is $________

Is the project acceptable? Yes or No

Problem 5

NPV Calculate the net present value (NPV) for a 15 year project with an initial investment of $40,000 and a cash inflow of $7000 per year. Assume that the firm has an opportunity cost of 15%. Comment on the acceptability of the project

The project net present Values $____

Is the project acceptable

Yes or no