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##### Fin500 week 9 homework

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Question;Problem 1;Suppose a;company is considering two investment projects. Both projects require an;upfront expenditure of \$30 million. The company estimates that the cost of;capital is 10% and that the investments will result in the following after-tax;cash flows (in millions of dollars). Complete parts (a) through (e) below.;Year;Project A;Project B;1;\$28;\$10;2;\$20;\$15;3;\$10;\$20;4;\$5;\$25;a) Find the regular payback;period for each project.;b) Find the discounted;payback period for each project.;c) Assume that the two;projects are independent and the cost of capital is 10%. Which project or;projects should the company undertake? Base your results on the NPV and show;the NPVs.;d) Assume that the two;projects are mutually exclusive and the cost of capital is 5%. Which project or;projects should the company undertake? Base your results on the MIRR and show;the MIRRs.;e) Explain why quantitative;measures may not always be the best way to evaluate a project.;Problem 2;A shellfish processing company is;thinking about purchasing a new clam digger for \$14,000. The expected net cash;flows resulting from the digger are \$9,000 in year 1, \$7,000 in the 2nd year;\$5,000 in the 3rd year, and \$3,000 in the 4th year. Should the company purchase;this digger if its cost of capital is 12 percent? In providing your answer, you must present;the NPV along with your decision to accept/reject.;Problem 3;What is the;internal rate of return for a project that has a net investment of \$60,000 and;the following net cash flows: Year 1 = \$15,000, Year 2 = \$20,000, Year 3 =;\$25,000, Year 4 = \$30,000 (You may find Excel or a financial calculator useful;to solve this problem)?

Paper#45074 | Written in 18-Jul-2015

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