29. You are considering two independent projects. Project A has an initial cost

Question

29. You are considering two independent projects. Project A has an initial cost of $125,000 and cash inflows of $46,000, $79,000, and $51,000 for years I to 3, respectively. Project B costs S135,000 with expected cash inflows for years I to 3 of $50,000, S30,000, and S100,000, respectively. The required return for both projects is 16 percent. Based on IRR, you shoulkd a. Accept Project B and reject Project A b. Reject both projects. c. Accept both projects. d. Accept Project A and reject Project B e. Accept either one of the projects, bat not both Answer 30. A project has an initial cost of S6,700. The cash inflows are $850, $2,400, s3,300, and $4,100 over the next four years, respectively. What is the payback period a 3.94 years b. 3.04 years c. 2.51 years d. 3.51 years e. 3.73 years Answer:- 31. Net present value: a. Is very similar in its methodology to the average accounting return. b. Is the best method of analyzing mutually exclusive projects c. Is less useful than the internal rate of return when comparing different sized projects. d. Cannot be applied when comparing mutually exclusive projects. e. Is the easiest method of evaluation for nonfinancial managers to use. Answer: 32. A project has an initial cash outflow of $39.800 and produces cash inflows of $18,304, S19.516, and $14,280 for years 1 through 3, respectively. What is the NPV at a discount rate of II percent? a. -$1.208.19 b. $2,029.09 c. $7,675.95 d. $1,311.16 e. $2,971.13 Answer:

Explanation / Answer

32-

year

cash flow

present value of cash flow = cash flow/(1+r)^n r = 11%

0

-39800

-39800

1

18304

16490.09

2

19516

15839.623

3

14280

10441.413

net present value

sum of present value of cash flow

2971.1264

Answer is e

31-

answer is B

is the best method of analyzing mutually exclusive projects

30-

year

cash flow

cumulative cash flow

0

6700

1

850

850

2

2400

3250

3

3300

6550

4

4100

150

amount to be recovered in year 4

payback period in years

previous year of final recovery + (amount to be recovered/cash flow of the year of final recovery)

3+(150/4100)

3.0365854

answer is B

3.04

29-

Project A

29-

Project B

year

year

0

-125000

0

-135000

1

46000

1

50000

2

79000

2

30000

3

51000

3

100000

IRR =using IRR function in MS excel spreadsheet =irr(-125000,46000,79000,51000)

18.86%

IRR =using IRR function in MS excel spreadsheet =irr(-135000,50000,30000,100000)

13.78%

Answer is D

Accept the project A as its IRR is greater is greater than 13%

32-

year

cash flow

present value of cash flow = cash flow/(1+r)^n r = 11%

0

-39800

-39800

1

18304

16490.09

2

19516

15839.623

3

14280

10441.413

net present value

sum of present value of cash flow

2971.1264

Answer is e

31-

answer is B

is the best method of analyzing mutually exclusive projects

30-

year

cash flow

cumulative cash flow

0

6700

1

850

850

2

2400

3250

3

3300

6550

4

4100

150

amount to be recovered in year 4

payback period in years

previous year of final recovery + (amount to be recovered/cash flow of the year of final recovery)

3+(150/4100)

3.0365854

answer is B

3.04

29-

Project A

29-

Project B

year

year

0

-125000

0

-135000

1

46000

1

50000

2

79000

2

30000

3

51000

3

100000

IRR =using IRR function in MS excel spreadsheet =irr(-125000,46000,79000,51000)

18.86%

IRR =using IRR function in MS excel spreadsheet =irr(-135000,50000,30000,100000)

13.78%

Answer is D

Accept the project A as its IRR is greater is greater than 13%

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