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Question;61.Last month, Lloyd's Systems analyzed the project whose;cash flows are shown below. However, before the decision to accept or reject;the project, the Federal Reserve took actions that changed interest rates and;therefore the firm's WACC. The Fed's action did not affect the forecasted cash;flows. By how much did the change in the WACC affect the project's forecasted;NPV? Note that a project's projected NPV can be negative, in which case it;should be rejected.;Old WACC;10.00%;New WACC;12.50%;Year;0;1;2;3;Cash flows;-$1,000;$410;$410;$410;62.Lasik Vision Inc. recently analyzed the project whose;cash flows are shown below. However, before Lasik decided to accept or reject;the project, the Federal Reserve took actions that changed interest rates and;therefore the firm's WACC. The Fed's action did not affect the forecasted cash;flows. By how much did the change in the WACC affect the project's forecasted;NPV? Note that a project's projected NPV can be negative, in which case it;should be rejected.;Old WACC;8.00%;New WACC;8.50%;Year;0;1;2;3;Cash flows;-$1,000;$410;$410;$410;63.Ehrmann Data Systems is considering a project that has;the following cash flow and WACC data. What is the project's MIRR? Note that a;project's projected MIRR can be less than the WACC (and even negative), in;which case it will be rejected.;WACC;8.75%;Year;0;1;2;3;Cash flows;-$1,000;$450;$450;$450;64.Ingram Electric Products is considering a project that;has the following cash flow and WACC data. What is the project's MIRR? Note;that a project's projected MIRR can be less than the WACC (and even negative);in which case it will be rejected.;WACC;14.75%;Year;0;1;2;3;Cash flows;-$800;$350;$350;$350;65.Malholtra Inc. is considering a project that has the;following cash flow and WACC data. What is the project's MIRR? Note that a;project's projected MIRR can be less than the WACC (and even negative), in;which case it will be rejected.;WACC;10.00%;Year;0;1;2;3;4;Cash flows;-$1,175;$300;$320;$340;$360;66.Hindelang Inc. is considering a project that has the;following cash flow and WACC data. What is the project's MIRR? Note that a;project's projected MIRR can be less than the WACC (and even negative), in;which case it will be rejected.;WACC;13.25%;Year;0;1;2;3;4;Cash flows;-$850;$300;$320;$340;$360;67.Stern Associates is considering a project that has the;following cash flow data. What is the project's payback?;Year;0;1;2;3;4;5;Cash flows;-$750;$300;$310;$320;$330;$340;68.Fernando Designs is considering a project that has the;following cash flow and WACC data. What is the project's discounted payback?;WACC;10.00%;Year;0;1;2;3;Cash flows;-$950;$500;$500;$500;69.Masulis Inc. is considering a project that has the;following cash flow and WACC data. What is the project's discounted payback?;WACC;10.00%;Year;0;1;2;3;4;Cash flows;-$700;$525;$485;$445;$405;70.Tesar Chemicals is considering Projects S and L, whose;cash flows are shown below. These projects are mutually exclusive, equally;risky, and not repeatable. The CEO believes the IRR is the best selection;criterion, while the CFO advocates the NPV. If the decision is made by choosing;the project with the higher IRR rather than the one with the higher NPV, how;much, if any, value will be forgone, i.e., what's the chosen NPV versus the;maximum possible NPV? Note that (1) "true value" is measured by NPV;and (2) under some conditions the choice of IRR vs. NPV will have no effect on;the value gained or lost.;WACC;6.75%;0;1;2;3;4;CFS -$1,100;$550;$600;$100;$100;CFL;-$2,700;$650;$725;$800;$1,400;71.A firm is considering Projects S and L, whose cash flows;are shown below. These projects are mutually exclusive, equally risky, and not;repeatable. The CEO wants to use the IRR criterion, while the CFO favors the;NPV method. You were hired to advise the firm on the best procedure. If the;wrong decision criterion is used, how much potential value would the firm lose?;WACC;7.75%;0;1;2;3;4;CFS -$1,025;$380;$380;$380;$380;CFL;-$2,150;$765;$765;$765;$765;72.Sexton Inc. is considering Projects S and L, whose cash;flows are shown below. These projects are mutually exclusive, equally risky;and not repeatable. If the decision is made by choosing the project with the;higher IRR, how much value will be forgone? Note that under certain conditions;choosing projects on the basis of the IRR will not cause any value to be lost;because the one with the higher IRR will also have the higher NPV, so no value;will be lost if the IRR method is used.;WACC;15.25%;0;1;2;3;4;CFS -$2,050;$750;$760;$770;$780;CFL;-$4,300;$1,500;$1,518;$1,536;$1,554;73.Moerdyk& Co. is considering Projects S and L, whose;cash flows are shown below. These projects are mutually exclusive, equally;risky, and not repeatable. If the decision is made by choosing the project with;the higher IRR, how much value will be forgone? Note that under certain;conditions choosing projects on the basis of the IRR will not cause any value;to be lost because the one with the higher IRR will also have the higher NPV, i.e.;no conflict will exist.;WACC;11.50%;0;1;2;3;4;CFS -$1,025;$650;$450;$250;$50;CFL;-$1,025;$100;$300;$500;$700

 

Paper#51061 | Written in 18-Jul-2015

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