Bhupatbhai Bruin, Inc., has identified the following two mutually exclusive projects:YearCash Flow (A)Cash Flow (B)0-$36,500-$36,500118,8206,400214,32012,900311,82019,40048,82023,400At what discount rate would the company be indifferent between these two projects?○ 19.73%20.34%19.32%20.95%○ 21.36%

Answered: Image /qna-images/answer/1396eaf5-946c-466a-9557-1f97c94d5eeb.jpg

Answered: Bruin, Inc., has identified the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -24,063 -24,063 1 10,320 12,063 2 10,900 9,360 3 10,800 10,400 Sketch the NPV profiles for X and Y over a range of discount rates from zero to 25 percent (take 0%, 5%, 10%, 15%, 20%, 25%). Calculate the IRR of the projects. What is the relationship between NPV and IRR for your values? What is the crossover rate for these two projects and what it indicates for your values? Note - answer all the parts of the question.
Consider the following two mutually exclusive projects: Second part of the Question Year Cash Flow(X) Cash Flow(Y) 0 –$ 19,900 –$ 19,900 1 8,825 10,050 2 9,050 7,775 3 8,775 8,675 d) At which range of discount rates would you choose Project X over Project Y? e) At which range of discount rates would you choose Project Y over Project X?
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -$ 15,900 -$ 15,900 1 6,710 7,290 2 7,290 7,730 3 4,810 3,630 a. What is the IRR of Project X? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim b. What is the IRR of Project Y? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim c. What is the crossover rate for these two projects? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decim a. IRR b. IRR % % c. Crossover rate %
1. Consider the following two mutually exclusive projects, X and Y, and their cash flows information, Project X Y (a) (b) Year 0 ($2,600) ($3,100) Year 1 $1,000 $ 900 Cash Flows Year 2 $1,300 $1,500 Year 3 $ 800 $1,100 Year 4 $ 400 $ 800 Assume that the appropriate discount rate is 14%, calculate the Payback Period, the Modified IRR (McKinsey's approach) AND the Profitability Index for Project Y. State clearly the key piece of information that you need in order to make the correct investment recommendation on the two projects according to the Payback Period method. Given that Project X's IRR is 15.16%, which project should be chosen according to the IRR method? Precisely explain how you should construct the incremental project and its cash flows numerically. Precisely explain your final selection between these two mutually exclusive projects according to the incremental project (IRR) analysis.
11. IRR rule (S5.3) Consider the following two mutually exclusive projects: Cash flows ($) Project A B Co -50 -50 C₁ +60 0 C₂ +60 0 0 +140 Page 142 a. Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and discount rate on the horizontal axis. b. What is the approximate IRR for each project? c. In what circumstances should the company accept project A? d. Calculate the NPV of the incremental investment (B – A) for discount rates of 0%, 10%, and 20%. Plot these on your graph. Show that the circumstances in which you would accept A are also those in which the IRR on the incremental investment is less than the opportunity cost of capital.
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 1 2 3 -$20,000 8,850 9,100 8,800 2 Instruction: Sketch the NPV profiles for X and Y over a range of discount rates from 0% to 25%. What is the crossover rate for these two projects (when both projects have the same NPV)? Show your steps. -$20,000 10,100 7,800 8,700 A▾ B I = 18 1
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y)0-$19.100-$ 19,100 18,625 9,650 2 8,650 7,575 3 8,575 8,475 Calculate the IRR for each project. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) What is the crossover rate for these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) What is the NPV of Projects X and Y at discount rates of 0 percent, 15 percent, and 25 percent?
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Vital Silence, Inc., has a project with the following cash flows: Year Cash Flow 0 $27,300 11,300 2 14,300 3 10,300 The appropriate discount rate is 16 percent. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR %
3. follows: Carnegie Corp. projects an annual cash flow for one of its divisions as Year 0 1 2 3 4 5 6 Cash flow (SM) 3 0 -10 2 2 2 2 What is the IRR for this cash flow stream? Try plotting the NPV as a function of the discount rate. Are there any problems with using IRR for this application?
Vital Silence, Inc., has a project with the following cash flows: Year Cash Flow 0 1 2 3 -$28,900 12,900 15,900 11,900 The appropriate discount rate is 14 percent. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Consider the following two mutually exclusive projects: Cash Flow Cash Flow Year (X) () 0. -$19,600 19,600 8,750 8,900 8,700 9,900 7,700 8,600 Calculate the IRR for each project. (Do not round intermedlate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Project X Project Y What is the crossover rate for these two projects? (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Crossover rate What is the NPV of Projects X and Y at discount rates of 0 percent, 15 percent, and 25 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) 23

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