Maurice Tutor

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Teaching Since: May 2017
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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 08 Oct 2017 My Price 10.00

Scanlon Inc.

Scanlon Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the one with the higher IRR will also have the higher NPV, so no value will be lost if the IRR method is used. WACC=10.00%

    End of Year
Project Investment 1 2 3 4      
A ($2,050) $750 $760 $770 $780      
B ($4,300) $1,500 $1,518 $1,536 $1,554      

1) Calculate the Pay Back Periods of the Projec t A and B (i.e., PIA and PIB)

2) Calculate the Net Present Value, NPVA and NPVB

3) Calculate the Internal Rate of Return, IRRA and IRRB.

4) Calculate the Profitability Index,   PIA and PIA

5) Find Crossover Rate (FisherAc€?cs rate of intersection), if it exists. Roughly, draw   NPV files of the projects. Indicate   the crossover rate, intercept (Y-axis) and IRRs for each project on your drawing.

A ($2,050) $750 $760 $770 $780
B ($4,300) $1,500 $1,518 $1,536 $1,554
Crossover Rate          
           
k NPV_A NPV_B      
           
0.00%          
0.50%          
1.00%          
1.50%          
2.00%          
2.50%          
3.00%          
3.50%          
4.00%          
4.50%          
5.00%          
5.50%          
6.00%          
6.50%          
7.00%          
7.50%          
8.00%          
8.50%          
9.00%          
9.50%          
10.00%          
10.50%          
11.00%          
11.50%          
12.00%          
12.50%          
13.00%          
13.50%          
14.00%          
14.50%          
15.00%          
15.50%          
16.00%          
16.50%          
17.00%          
17.50%          
18.00%          
18.50%          
19.00%          
19.50%          
20.00%          
20.50%          
21.00%          
21.50%          
22.00%          
22.50%          
23.00%          
23.50%          
24.00%          
24.50%          
25.00%          
25.50%          
26.00%          
26.50%          
27.00%        

 

Please show formulas for all, for #5, show a few of the formulas, I can figure out the rest. Thanks!

 
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Answers

Maurice Tutor
(5)
Status NEW Posted 08 Oct 2017 09:10 PM My Price 10.00

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