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- Wallace Company is considering two projects. Their required rate of return is 10%. Which of the two projects, A or B, is better in terms of internal rate of return?Observe the graph below and identify the internal rate of return. Assume that the discount rate is 8%. What is the net present value of the project? Briefly explain if the project is viable or not? NPV 50000 40000 30000 20000 10000 4 10 12 14 16 18 20 22 24 • 26 28 -10000 discount rate Edit View Insert Format Tools TableTwo mutually exclusive alternatives A and B are being considered: Year A 1 A 2 0 1 -$2500 $746 -$6000 $1664 2 3 4 5 $746 $746 $746 $746 $1664 $1664 $1664 $1664 The minimum attractive rate of return is 8%. After calculation we can find that the internal rates of return: for A 1, IRRA1 = 17%, for B, IRRA2 = 14% and for A 2-A 1, IRRA2-A1 = 9.8%. Which of the following statements is correct? Select A 1 because IRRA 1 > IRRA 2 Select neither A 1 nor A 2 because IRRA 1 > MARR and IRRA 2 > MARR Select A 1 because IRRA 2-A 1 > MARR select A 2 because IRR 2-1 > MARR
- Consider three mutually exclusive alternatives. The MARR is 10%. x Y z |- $125 - $60 - $65 20 15 Year 10 1 40 15 2 40 20 3 40 15 20 4 40 15 20 (a) For Alt. X, compute the benefit-cost ratio. (b) Based on the payback period, which alternative should be selected? (c) Determine the preferred altemative based on an exact economic analysis method.1) You are considering the following mutually exclusive projects: (15pts) 1 4. Project A -400 50 50 50 230 230 Project B -600 300 300 50 50 50 if the firm required return (WACC) is 10%: a. What is the NPV of project A? b. What is the IRR of project A? C. What is the NPV of project B? d. What is the IRR of project B? e. Which one you must select? a. b. C. d. e.A firm evaluates all of its projects by applying the IRR rule. If the required return is 18 percent, will the firm accept the following project?CF0 = -$30,000CO1 = $20,000C02 = $14,000C03 = $11,000 yes or no
- Which alternative should be selected using the incremental rate of return analysis, if MARR =11.0%? Do- nothing A B C D First Cost 0 $10,000 $4000 $10,000 $7000 Annual benefit 0 1,806 828 1,880 1,067 Life 10 Years ROR 12.5% 16.0% 13.5% 8.5% a. B, because its ROR is the highest b. Something other than C, because C costs the most initially c. C, because the C-B increment has a ROR of 11.78% and the A-B increment has a ROR of 10.5% d. C because C has the highest annual benefitQuestion Answer 1. If the payback on a project is 3.2 years will the discounted payback be more or will it be less than 3.2 years? 2. If the IRR of a project is 10% will the MIRR be more or will it be less than 10%? 3. What does Payback inform us about the risk of project? 4. What does IRR inform us about the risk of project?What is the net present value of an investment that requires a 10 percent minimum rate of return and has the following projected cash flows: Yr0 = -100, Yr1 = 25, Yr2 = 35, Yr3 = 45, Yr4 = 35, and Yr5 = 30? a. 41 b. 28 c. 34 d. 35
- Economics Q1) study period is 10 years. MARR=12% A В Capital 11000 16000 13000 18000 investment Annual cost Market value PW (12%) 250 300 400 100 1000 1300 1750 2000 -12090 -17276 ??? -17921 a) PW of alternative C equals b) The rejected alternatives are c) The first comparison in the incremental analysis should be A (?-?) d) Write down the equation of the IRR A (D-B) e) Rank order the alternatives from best to the worst (if any) f) Draw the cash flow diagram for A (C-A)You are considering the following two mutually exclusive investments: Project Year 0 Year 1 Year 2 A -$80 0 $120 B -$40 $28 $28 Which project has the higher NPV if the required rate of return is 5%?9. Compare two alternatives using i = 10% Alternative X Alternative Y First cost, $ M&O costs, $/year 45,000 Benefits, $/year Disbenefits, $/year 20,000 Life, years 320,000 540,000 35,000 110,000 150,000 45,000 10 20 a) Which alternative should be selected? b) Calculate the option based on incremental value and justify?