Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 10, Problem 10.4P
Long-term investment decision, payback method Bill Williams has the opportunity to invest in project A, which costs $9,000 today and promises to pay $2,200, $2,500, $2,500, $2,000, and $1,800 over the next 5 years. Or Bill can invest $9,000 in project B. which promises to pay $1,500, $1,500, $1,500, $3,500, and $4,000 over the next 5 years.
- a. How long will it take for Bill to recoup his initial investment in project A?
- b. How long will it take for Bill to recoup his initial investment in project B?
- c. Using the payback period, which project should Bill choose?
- d. Do you see any problems with his choice?
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QUESTION 6
You are considering two independent projects both of which have been assigned a discount rate of 11.5% percent. Based on
the project NPV, what is your recommendation concerning these projects?
Project A
Project B
Year
Cash Flow
Year
Cash Flow
-$92,250
-$45,000
1
$50,500
$59,000
1
$17,500
$30,000
O You should accept both projects.
O You should reject both projects.
O You should accept project A and reject project B.
You should accept project B and reject project A.
O You should accept project A and be indifferent to project B.
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Porter Company is analyzing two potential Investments.
Project X
$ 97,090
Initial investment
Net cash flow:
Year 1
Year 2
Year 3
Year 4
Multiple Choice
If the company is using the payback period method, and it requires a payback of three years or less, which
project(s) should be selected?
O
32,500
32,500
32,500
0
Both X and Y are acceptable projects.
O Project Y.
Project Y
$ 77,000
Project Y because it has a lower Initial Investment.
Project X
5,700
34,500
34,500
25,000
Neither X nor Y is an acceptable project.
Consider an investment project in which you invest $3,500 today in order to receive $525 at the end of each of the next 10 years. If the cost of capital is 12% per year,
what is the IRR and should the project be accepted?
7.23%, accept project
7.23%, reject project
5.28%, accept project
5.28%, reject project
8.14%, reject project
8.14%, accept project
a.
b.
C.
d.
e.
O f.
Chapter 10 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 10.1 - What is the financial managers goal in selecting...Ch. 10.2 - What is the payback period? How is it calculated?Ch. 10.2 - What weaknesses are commonly associated with the...Ch. 10.3 - How is the net present value (NPV) calculated for...Ch. 10.3 - Prob. 10.5RQCh. 10.3 - Prob. 10.6RQCh. 10.4 - Prob. 10.8RQCh. 10.4 - Prob. 10.9RQCh. 10.4 - Prob. 10.10RQCh. 10.5 - How is a net present value profile used to compare...
Ch. 10.5 - Prob. 10.13RQCh. 10 - Prob. 1ORCh. 10 - All techniques with NPV profile: Mutually...Ch. 10 - Elysian Fields Inc. uses a maximum payback period...Ch. 10 - Prob. E10.1WUECh. 10 - Prob. 10.2WUECh. 10 - Prob. E10.2WUECh. 10 - Axis Corp. is considering investment in the best...Ch. 10 - Prob. E10.3WUECh. 10 - Prob. 10.4WUECh. 10 - Prob. E10.4WUECh. 10 - Cooper Electronics uses NPV profiles to visually...Ch. 10 - Prob. E10.5WUECh. 10 - Payback period The Ball Shoe Company is...Ch. 10 - Payback comparisons Nova Products has a 5-year...Ch. 10 - Prob. 10.3PCh. 10 - Long-term investment decision, payback method Bill...Ch. 10 - Prob. 10.5PCh. 10 - Prob. 10.6PCh. 10 - Prob. 10.7PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Prob. 10.10PCh. 10 - Prob. 10.11PCh. 10 - Prob. 10.12PCh. 10 - NPV and EVA A project costs 2,500,000 up front and...Ch. 10 - Prob. 10.14PCh. 10 - Prob. 10.15PCh. 10 - Prob. 10.16PCh. 10 - Prob. 10.17PCh. 10 - Prob. 10.18PCh. 10 - Prob. 10.19PCh. 10 - Prob. 10.20PCh. 10 - Prob. 10.21PCh. 10 - Prob. 10.22PCh. 10 - Prob. 10.23PCh. 10 - Prob. 10.24PCh. 10 - All techniques with NPV profile: Mutually...Ch. 10 - Integrative: Multiple IRRs Froogle Enterprises is...Ch. 10 - Integrative: Conflicting Rankings The High-Flying...Ch. 10 - Problems with IRR White Rock Services Inc. has an...Ch. 10 - ETHICS PROBLEM Diane Dennison is a financial...Ch. 10 - Spreadsheet Exercise The Drillago Company is...
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