PRESENT VALUE, you have a choice of accepting either of the two, 5-year cash flow streams or lump sum amounts’. One cash flow stream is an annuity, and the other is a mixed stream. You may accept alternative A or B Either as cash flow stream or as a lump-sum. Given the cash flow stream and lump-sum amounts associated with each, and assuming a 9% opportunity cost, which alternative (A or B) And in which form (cash flow stream or lump-sum amount) would you prefer? End of year Alternative A Alternative B 1 $700 $1,100 2 $700 $900 3 $700 7$00 4 $700 $500 5 $700 $300 LUMP-SUM AMOUNT At time zero $2,825 $2,800

PRESENT VALUE, you have a choice of accepting either of the two, 5-year cash flow streams or lump sum amounts’. One cash flow stream is an annuity, and the other is a mixed stream. You may accept alternative A or B Either as cash flow stream or as a lump-sum. Given the cash flow stream and lump-sum amounts associated with each, and assuming a 9% opportunity cost, which alternative (A or B) And in which form (cash flow stream or lump-sum amount) would you prefer? End of year Alternative A Alternative B 1 $700 $1,100 2 $700 $900 3 $700 7$00 4 $700 $500 5 $700 $300 LUMP-SUM AMOUNT At time zero $2,825 $2,800

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 11MC: In an unrelated analysis, you have the opportunity to choose between the following two mutually...

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In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for 2 years) and Project F (which lasts for 4 years): The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital. (1) What is each projects initial NPV without replication? (2) What is each projects equivalent annual annuity? (3) Apply the replacement chain approach to determine the projects extended NPVs. Which project should be chosen? (4) Assume that the cost to replicate Project T in 2 years will increase to 105,000 due to inflation. How should the analysis be handled now, and which project should be chosen?
Suppose you are offered a project with the following payments: Year Cash Flows 0 $ 9,800 1 −5,300 2 −4,000 3 −3,100 4 −1,700 a. What is the IRR of this offer? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the appropriate discount rate is 15 percent, should you accept this offer? c. If the appropriate discount rate is 21 percent, should you accept this offer? d-1. What is the NPV of the offer if the appropriate discount rate is 15 percent? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d-2. What is the NPV of the offer if the appropriate discount rate is 21 percent? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
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