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Internal Rate of Return (IRR)

Finding the Incremental IRR

You work for an outdoor play structure manufacturing company and are trying to decide between two projects: Year-end cash flows ($ thousands) Project.................0...................1..............2...............IRR Playhouse .........-30.................15............20............10.4% Fort....................-80.


1. In the corporate form, the separated structure creates the potential for __________ between owners and managers. a. A conflict of interest b. Increased transactions costs c. Stability in relations d. None of the above 2. Incentive problems take a variety of forms. They include a. Moral hazard b. Adverse selection. c.

I have 20 questions.

I have 20 questions. Can someone please help with them? 12 are multiple choice and 8 are true/false. Thank you. David 1. Determining the maturity and type of funds raised in financial markets is part of the: A. Investment decision B. Capital budgeting decision C. Financing decision D. Both A & B 2. Which of t

Capital Budgeting

Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: Year Project A Project B 0 -$100,000 -$100,000 1 32,000 0 2 32,000 0 3 32,000 0 4 32,000 0 5

Sample Finance Quiz

Need Help with sample quiz. Sample Finance Quiz 1. The ______ is the annual rate of interest earned on a security purchased on a given date and held to maturity. A. Term Structure B. Yield Curve C. Risk-free Rate D. Yield to maturity 2. If a new asset is being considered as a replacement for an old asset, the relevant

Add-on loan

After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $10,000 price,but financing through the dealer is no bargain. He has $2,000 cash for a down payment, so he needs an $8,000 loan. In shopping at several banks for an installment loan, he learns that most interest on automobile loans

Capital investment projects

A company has $40 million to invest in any or all of the four capital investment projects, which have cash flows as shown below. Year of Cash Flow Project Type of cash flow Yr 0 Yr 1 Yr 2 Yr 3 A Investment ($10,000) Revenue $21,000 Operating expenses $11,000 B Investment ($10,000) Revenue

Cornwallis, Inc.

A bond issued by Cornwallis, Inc. 15 years ago has a coupon rate of 7% and a face value of $1,000. The bond will mature in 10 years. What is the value (to the nearest dollar) to an investor with a required return of 10%? Alaska Power Company issued $1,000 bonds that have an annual coupon rate of 7.5%. The present market value o

Managerial accounting

1-A project's net present value, ignoring income taxes, is affected by: a- the net book value of an asset that is replaced. b- the depreciation on an asset that is replaced. c- the depreciation to be taken on assets used directly on the project. d- proceeds from the sale of

Economic Profit and NPV for Steele Electronics

Economic Profit and NPV Steele Electronics is considering an investment in a new component that requires a $100,000 investment in new capital equipment, as well as additional net working capital. The investment is expected to provide cash flows over the next five years. The anticipated earnings and project free cash flows for

Please assist with finding the formulas for the following:

(Hint: Table 7.5 on page 279 and the discussion regarding that table in your text should be extremely helpful in completing this case study.) Bethesda Mining is a mid sized coal mining company with 20 mines located in Ohio, Pennsylvania, West Virginia, and Kentucky. The company operates deep mines as well as strip mines.

Internal rate of return

3. Bagel Pantry Inc. is considering the following two projects. The company's cost of capital is 12%. The projected cash flows are summarized as follows: Time Project A Project B 0 $(25,000) $(23,000) 1 14,742 6,641 2 14,742 6,641 3 14,742 6,641 4 6,641 5 6,641

Cash Flows: Calculating the IRR

You are considering an investment in a project with a life of eight years, an initial outlay of $120,000, and annual after-tax cash flows of $52,000. The project also requires an increase in inventories of $22,000. This $22,000 investment in inventory is required at the outset of the project and will be released when the project

Multiple Choice Questions in finance: cost of capital, cost of debt, cost of equity, capital structure weights, WACC, debt-equity ratio, preferred stock, rate of return, pure play approach, beta, net present value, discount rate

1. A firm's overall cost of capital: d. varies inversely with its cost of debt. a. is unaffected by changes in the tax rate. e. is another term for the firm s internal rate of return. b. is the same as the firm s return on equity. c. is the required return on the total assets of a firm. 2.

Payout stock price, calculate ratios, growth rate, merger facts

8. Cash Dividends. The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $0.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown on the following table. Assets Liabilities and Equity Cash $100,000 Equity $1,000,000 Fixed Assets $900,000

Monocle Enterprise: IRR for two mutually exclusive investment

Mr. Polly Femus, the president of Monocle Enterprise, is evaluating the following two mutually exclusive investments: Cash Flows C0 C1 C2 Project A -$400 $241 $293 Project B - 200 131 172 a) Determine the IRR for each. b) If Mr. Femus chooses the project with the higher IRR, under what circumstances will h

Classified stock; Preferred stock; Normal & Nonnormal cash flows

Classified stock Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT? a. All common stocks fall into one of three classes: A, B, and C. b. All firms have several classes of common stock. c. All common stocks, regardless of class, must have the sa

Kingsbury Associates has current assets as follows

Kingsbury Associates has current assets as follows: Cash $3,000 Accounts receivable $4,500 Inventories $8,000 If Kingsbury has a current ratio of 3.2, what is its quick ratio? a. 2.07 b. 1.55 c. 0.48 d. 0.96 Which of the following will decrease discretionary funds nee

Find the present value of each of the following cash flows:

Here are the examples: 1. How do you find the present value of each of the following cash flows?: a. $50,000 a year for 20 years, @6% b. $2.50 a year for ever @ 12% c. $65 a year for four years and $1065 in the 5th year, @8% d. $1,250/month for 30 years, @5.75% 2. When the following cash flows are listed as follows

Internal Rate of Return and Free Cash Flow

1) Determine to the nearest percent the IRR on the following projects: A) An initial outlay of $ 10,000 resulting in a free cash flow of $ 2000 at the end of year 1, $ 5000 at the end of year 2, and $ 8,000 at the end of year 3. B) An initial outlay of $ 10,000 resulting in a free cash flow of $ 8000 at the end of year 1

Practice 18-16 Ranking by the Internal Rate of Return Method

I don't understand this problem at all. Practice 18-16 Ranking by the Internal Rate of Return Method The company is considering eight capital investment projects. The company has a minimum required internal rate of return of 13%. Screen and rank the eight capital investment projects using the internal rate of return. P

Income Tax Effects

Income Tax Effects Kade Corporation is considering purchasing a new piece of equipment. The equipment will cost $135,000 and is expected to have a useful life of five years. The gross cash flow savings is estimated to be $50,000 per year. The company elects not to take the expense deduction and will depreciate the full cost of

Net Operating Income/Residual/ Find K

I already have the answer (k*=25.91%) to this problem from my text book but I need to know step by step how they got to the answer. All that is provided in the example is: Price = NOI1/(1+K*)^1 + NOI2/(1+K*)2........+ (NOI5 + Residual)/(1+k*)^5 where K* = expected before-tax return on an unlevered investment NOI= Net Oper