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Cash Flow
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|---|---|---|---|
| Project A | Project B | ||
| Year 0: | –$20,000 | Year 0: | –$45,000 |
| Year 1: | 11,000 | Year 1: | 9,000 |
| Year 2: | 17,000 | Year 2: | 16,000 |
| Year 3: | 16,000 | Year 3: | 15,000 |
| Year 4: | 14,000 | ||
| Year 5: | 13,000 | ||
| Year 6: | 12,000 |
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- ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC Telecom will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 11%? Project A Year 0: Year 1: Year 2: Year 3: $11,217 $14,422 $13,620 $17,626 $16,024 $35,090 $28,987 $30,513 $36,616 Cash Flow $38,141 -$12,500 8,000 14,000 13,000 ABC Telecom is considering a four-year project that has a weighted average cost of capital of 13% and a NPV of $90,760. ABC Telecom can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project? Project B Year 0: Year 1: Year 2: Year 3:…Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 11%? Project A Year 0: Year 1: Year 2: Year 3: O $15,077 O $21,538 $12,923 O $14,000 O $19,384 Cash Flow -$12,500 8,000 14,000 13,000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: -$40,000 9,000 13,000 12,000 11,000 10,000 9,000Wizard Inc. has to choose between two mutually exclusive projects. If it chooses project A, Wizard Inc. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 12%? Project A Year 0: Year 1: Year 2: Year 3: Cash Flow O $17,672 O $12,049 -$12,500 8,000 14,000 13,000 O $13,655 O $16,065 O $10,442 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: -$40,000 8,000 15,000 14,000 13,000 12,000 11,000 i
- Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%? Cash Flow Project A Project B Year 0: –$12,500 Year 0: –$45,000 Year 1: 8,000 Year 1: 10,000 Year 2: 14,000 Year 2: 17,000 Year 3: 13,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 $11,776 $9,421 $7,066 $10,598 $7,654 Praxis Corp. is considering a three-year project that has a weighted average cost of capital of 11%…Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 13%? Cash Flow Project A Project B Year 0: –$17,500 Year 0: –$45,000 Year 1: 10,000 Year 1: 10,000 Year 2: 16,000 Year 2: 17,000 Year 3: 15,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 $9,656 $14,163 $10,944 $12,875 $10,300Globo-Dharma Co. has to choose between two mutually exclusive projects. If it chooses project A, Globo-Dharma Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 14%? Project A Year 0: Year 1: Year 2: Year 3: $17,143 O $22,857 $14,857 $18,286 O $20,571 $10,388 Cash Flow O $8,657 O $7,791 $9,090 O $9,523 -$10,000 7,000 15,000 14000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: Globo-Dharma Co. is considering a five-year project that has a weighted average cost of capital of 13% and a NPV of $30,450. Globo-Dharma Co. can replicate this project indefinitely. What is the…
- Allied Biscuit Co. has to choose between two mutually exclusive projects. If it chooses project A, Allied Biscuit Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 12%? Cash Flow Project A Project B Year 0: –$17,500 Year 0: –$45,000 Year 1: 10,000 Year 1: 10,000 Year 2: 16,000 Year 2: 17,000 Year 3: 15,000 Year 3: 16,000 Year 4: 15,000 Year 5: 14,000 Year 6: 13,000 A. $8,754 B. $12,506 C. $7,504 D. $10,630 E. $11,255 Allied Biscuit Co. is considering a three-year project that has a…4. Unequal project lives ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC Telecom will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 12%? Cash Flow Project A Year 0: -$17,500 Year 0: $45,000 Year 1: 10,000 Year 1: 9,000 Year 2: 16,000 Year 2: 16,000 Year 3: 15,000 Year 3: 15,000 Year 4: 14,000 Year 5: 13,000 Year 6: 12,000 • $14,124 $14,955 $18,279 ● $16,617 • $13,294 ABC Telecom is considering a three-year project that has a weighted average cost of capital of 10% and a NPV of $45,681. ABC Telecom can replicate this project indefinitely. What…7. Unequal project lives Praxis Corp. has to choose between two mutually exclusive projects. If it chooses project A, Praxis Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 13%? Cash Flow Project A Project B Year 0: –$20,000 Year 0: –$40,000 Year 1: 11,000 Year 1: 8,000 Year 2: 17,000 Year 2: 15,000 Year 3: 16,000 Year 3: 14,000 Year 4: 13,000 Year 5: 12,000 Year 6: 11,000 $15,635 $11,726 $17,199 $14,072 $10,945 Praxis Corp. is considering a five-year project that has a…
- 7. Unequal project lives Newtown Corp. has to choose between two mutually exclusive projects. If it chooses project A, Newtown Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 14%? Project A Year 0: Year 1: Year 2: Year 3: $11,416 $10,601 $13,863 Cash Flow -$15,000 9,000 15,000 14,000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: - $40,000 8,000 15,000 14,000 13,000 12,000 11,0007. Unequal project lives Allied Biscuit Co. has to choose between two mutually exclusive projects. If it chooses project A, Allied Biscuit Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 14%? Cash Flow Project A Project B Year 0: –$12,500 Year 0: –$45,000 Year 1: 8,000 Year 1: 9,000 Year 2: 14,000 Year 2: 16,000 Year 3: 13,000 Year 3: 15,000 Year 4: 14,000 Year 5: 13,000 Year 6: 12,000 $17,719 $11,517 $12,403 $15,061 $10,631 Allied Biscuit Co. is considering a four-year project…Calculate the payback period, net present value, and internal rate of return for Project A. Assume a discount rate of 10%. Should the firm accept or reject Project A? Explain. If Project A and Project B are mutually exclusive, which is the better choice? Explain. What are “non-conventional” cash flows? What issues arise when evaluating projects with “non-conventional” cash flows? Project A Project B Year Cash Flow Year Cash Flow 0 -$100,000 0 -$1 1 $70,000 1 $0 2 $0 2 $0 3 $50,000 3 $10
