17. Oxford Company has limited funds available for investment and must ration the funds among five competing projects. Selected information on the five projects follows:

Project
Investment Required
Net Present Value
Life of the Project (years) Internal Rate of Return (percent)
A $160,000 $44,323 7 18%
B $135,000 $42,000 12 16%
C $100,000 $35,035 7 20%
D $175,000 $38,136 3 22%
E $150,000 $(8,696) 6 8%

The net present values have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth.

(A) Compute the project probability index for each project.

(B) In order of preference, rank the five projects in terms of :
a. Net Present Value
b. Project Probability Index
c. Internal Rate of Return

This solution shows step-by-step calculations of the net present value, project probability index and it ranks the five projects in terms of NPV, PI, and IRR with justifications of preference.

A simulation model similar to the one described in this chapter has been constructed by The Great Basin Corporation to evaluate the largest of its new investment proposals. After many iterations of the model, Great Basin's management has arrived at an expected netpresentvalue for Project A of $1.0 million. The standard deviati

A consensus of experts has agreed on the following table of potential NPVs and their likelihoods for a capital budgeting project that involves considerable uncertainty and is therefore risky:
PROBABIlITY NPV ($thousands)
0.15 (300)
0.35 (50)
0.45 500
0.05

A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $8,500. What is the netpresentvalue of this project if the required rate of return is 13.75 percent?

Project A: presentvalue (PV) of cash inflows is $55,000 and the PV of the cash outflows is $50,000. Project B: PV of cash inflows is $24,000 and the PV outflows is $20,000. All of the following are true except ______.
the netpresentvalue of Project A is $5,000, the netpresentvalue of Project B is $4,000, the profita

What is the netpresentvalue of a project that requires a net investment of $76,000 and produces net cash flows of $22,000 per year for 7 years? Assuming the cost of capital is 15 percent. (Presentvalue (PV) of inflows less Net Investment (NINV)
The four answers to choose from are the following:
a. $91,520
b. $15,520
c.

We are examining a new project. We expect to sell 750 units at $20 net cash flow apiece for year 1. We expect to sell 250 units in year 2 at $20 net cash flow apiece. The relevant discount rate is 20%, and the initial investment is $55,000.
a) If success and failure are equally likely, what is the NPV of the project? Consider

What is the netpresentvalue of a project that has an initial cash outflow of $12,670 and the following cash inflows? The required return is 11.5%.
Year Cash Inflows
1 $4,375
2 $0
3 $8,750
4 $4,100
a) $218.68
b) $370.16
c) $768.20
d) $1,249.65
e) $1,371.02

Your company is considering the following projectand has a cost of capital of 15%.
A. What is the NetPresentValue of the initial project?
B. What is the NetPresentValue of the expansion option?
C. Would you recommend the project? Why?
Initial Project:
Cost: $50,000
ATCFs of $9,000 each year for five years.

I am deciding among two mutually exclusive projects. The two projects have the following cash flows:
Project X
Year 0 -50,000
Year 1 10,000
Year 2 15,000
Year 3 40,000
Year 4 20,000
Project Y
Year 0 -30,000
Year 1 6,000
Year 2 12,000
Year 3 18,000
Year 4 12,000
The company's cost of capital is 10% (WACC = 10%