Calculate the payback period for each project

Assignment Help Financial Management
Reference no: EM131049007

All techniques: Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table.

Cash flows                               Project A               Project B                Project C

Initial investment (CF0)            $60,000                $100,000               $110,000

Cash inflows (CFt), t = 1 to 5     20,000                  31,500                   32,500

a. Calculate the payback period for each project.

b. Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to 13%.

c. Calculate the internal rate of return (IRR) for each project.

d. Draw the net present value profiles for both projects on the same set of axes, and discuss any conflict in ranking that may exist between NPV and IRR.

e. Summarize the preferences dictated by each measure, and indicate which project you would recommend. Explain why.

Reference no: EM131049007

Questions Cloud

What price should a share sell : The risk-free rate of return is 6%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.0. If the dividend per share expected during the coming year, D_1 is $2.00 and g = 4%, at what price should a share..
Accounting break-even level of sales if firm pays no taxes : Modern Artifacts can produce keepsakes that will be sold for $60 each. Non depreciation fixed costs are $2,500 per year, and variable costs are $30 per unit. The initial investment of $4,000 will be depreciated straight-line over its useful life of 5..
How to write a business case for innovation : How to write a business case for innovation. create a Business scenario, or perhaps your own business/organisation, and provide estimates of timeframes, running costs and benefits, personnel required
What is your combined tax rate : Your company generated $400,000 in taxable income for 2015. Assume that your average Federal tax rate is 25% and your State tax rate is 8%. What is your combined tax rate? How much Federal tax do you owe?
Calculate the payback period for each project : All techniques: Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. Calculate the payback period for each project. Calculate the net present value (NPV) of each project..
Probability that project will achieve at least that level : Hy-tec Communication has calculated the return on assets (ROA) for one of its projects using a simulation method. By simulating the operations 1,000 times, they obtained an ROA of 16.7 percent and a standard deviation of 6.2. The results of the simul..
Two mutually exclusive projects-cash flow : Mahjong, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$36,900 –$36,900 1 19,260 6,760 2 14,760 13,260 3 12,260 19,760 4 9,260 23,760. If the required return is 15 percent, what is the NPV for..
What is required return on greens equity after restructuring : Green Manufacturing, Inc., plans to announce that it will issue $1.91 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 7 percent. Green is currently an all-equity firm worth $..
Sells extended warranties for durable consumer goods : Internal rate of return Peace of Mind, Inc. (PMI), sells extended warranties for durable consumer goods such as washing machines and refrigerators. A consumer who purchases the 2-year warranty will pay PMI $200. On average, the repair costs that PMI ..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Bonds with call option and bonds with convertible option

One of the following embedded options will decrease the required rate of return by bondholders if other factors are constant. What is it? (1) Bonds with call option (2) bonds with convertible option (3) straight bonds (4) bullet bonds

  What is the annualized lease rate for this copper contract

The spot price of copper is $70 per ounce. The 9-month forward price is $72.13. The continuously compounded risk-free rate is 5%. What is the annualized lease rate for this copper contract?

  Differences between three different types of interest rates

In this assignment describe and explain the differences between the three different types of interest rates one from the Federal Reserve, one from a bank for business, and one from any financial institution for a consumer loan.

  Compute the value of this stock

A firm does not pay a dividend. It is expected to pay its first dividend of $0.28 per share in three years. This dividend will grow at 10 percent indefinitely. Use an 11 percent discount rate. Compute the value of this stock

  Oil powered generator with a solar power generator

Georgia Power is contemplating replacing an oil powered generator with a solar power generator. The old generator was purchased 22 years ago and is being depreciated over its 25 years life to a zero salvage value using straight-line depreciation. The..

  Zero coupon bond with a face value-implicit interest

A zero coupon bond with a face value of $1,000 is issued with an initial price of $565.01. The bond matures in 20 years. What is the implicit interest, in dollars, for the first year of the bond's life?

  What is ceiling that importer has set on price of pounds

Suppose a U.S company has to pay £5million after 3 months. To edge this the importer buys a call options on the pounds, and the option premium is $0.0220/£, the strike price K = $1.50/£ What is the cost incurred today? What is the ceiling that the im..

  Horizontal analysis mary lynn corporation has been

horizontal analysis. mary lynn corporation has been operating for several years. selected data from the 20x1 and 20x2

  What would be the future value of this same annuity

An ordinary annuity has an interest rate of 10% and a future value of 80.00. What would be the future value of this same annuity, if it were an annuity due instead of a regular annuity? The future value of this annuity due is $

  This debt must be repaid in two equal instalments

Digital Organics (DO) has the opportunity to invest $0.98 million now (t = 0) and expects after-tax returns of $580,000 in t = 1 and $680,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 14% with all-equity f..

  Calculate the means for variables of index

Using the S&P Analysts Handbook, calculate the means for the following variables of the S&P Industrials Index and the industry of your choice during the last 10 years :

  Estimate the value of a share of coca-cola stock

You notice that PepsiCo (PEP) has a stock price of $72.62 and EPS of $3.80. Its competitor, the Coca-Cola Company (KO), has EPS of $1.89. Estimate the value of a share of Coca-Cola stock using only this data.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd