Investment Appraisal Research

I’m working on a management question and need support to help me learn.

1)

Intro

Office Min is considering several risk-free projects:ProjectInitial cash flowCash flow in 1 yearA-8,80010,560B-4,0004,200C-5,2005,980

The risk-free interest rate is 9%.

Part 1

What is the NPV of project A?

Part 2

What is the NPV of project B?

Part 3

What is the NPV of project C?

Part 4

Which projects should the company accept?

Check all that apply:PROJECT A

PROJECT B

PROJECT C

2) Intro

You’ve estimated the following cash flows (in $) for two projects:YearProject AProject B0-5,300-7,95011,3251,32522,1482,14833,7447,479

The required return for both projects is 8%.

Part 1

What is the NPV for project A?

Part 2

What is the NPV for project B?

Part 3

Which project seems better according to the NPV method?

PROJECT B

PROJECT A

3) Intro

You’ve estimated the following cash flows (in $) for a project:AB1YearCash flow20-5,300311,325422,148533,060

The required return for the project is 8%.

Part 1

What is the IRR for the project?

Part 2

Should you accept the project?

NO

YES

4) Intro

You’ve estimated the following cash flows (in $) for two mutually exclusive projects:YearProject AProject B0-5,400-8,10011,3251,32522,1482,14833,8467,672

The required return for both projects is 8%.

Part 1

What is the IRR for project A?

Part 2

What is the IRR for project B?

Part 3

Which project seems better according to the IRR method?

PROJECT B

PROJECT A

Part 4

What is the NPV for project A?

Part 5

What is the NPV for project B?

Part 6

Which project seems better according to the NPV method?

PROJECT A

PROJECT B

Part 7

Compare the answers to parts 3 and 6. If both projects are mutually exclusive, which one should you accept?

PROJECT B

PROJECT A

5) Intro

Molin Inc. is considering to a project that will have the following series of cash flow from assets (in $ million):YearCFA0-1,429.52145326173935

The required return for the project is 11%

Part 1

What is the NPV of the project?

Part 2

What is the project‘s profitability index?

Part 3

What is the internal rate of return (IRR) for this project?

6) Intro

You are evaluating an investment project costing $43,000 initially. The project will provide $3,000 in after-tax cash flows in the first year, and $7,000 each year thereafter for 10 years. The maximum payback period for your company is 6 years.

Part 1

What is the payback period for this project?

Part 2

Should your company accept this project?

NO

YES

7) Intro

Your firm is subject to capital rationing and can only invest $60,000. You’ve estimated the following cash flows (in $) for two projects:YearProject AProject B0-54,000-54,000110,00030,000220,00020,000330,00010,000440,0000

The required return for both projects is 8%.

Part 1

What is the payback period for project A?

Part 2

What is the payback period for project B?

Part 3

Which project seems better according to the payback method?

PROJECT A

PROJECT B

Part 4

What is the NPV for project A?

Part 5

What is the NPV for project B?

Part 6

Which project seems better according to the NPV method?

PROJECT A

PROJECT B

Part 7

Compare the answers to parts 3 and 6. If both projects are mutually exclusive, which one should you accept?

PROJECT B

PROJECT A