NPV?, with rankings Botany? Bay, Inc., a maker of casual? clothing, is considering four projects shown...

70.2K

Verified Solution

Question

Finance

NPV?, with rankings Botany? Bay, Inc., a maker of casual?clothing, is considering four projects shown in the following?table,
Initial investment   $50,100  $100,000   $80,100   $180,200
Year   Cash inflows
1   $20,600   $35,400  $20,800   $100,400
2   $20,600   $51,500  $39,800   $79,300
3   $20,600   $51,100  $60,700   $60,400
Because of past financial? difficulties, the company has a highcost of capital at 14.7 %.
a. Calculate the NPV of each? project, using a cost of capitalof 14.7 %.
b. Rank acceptable projects by NPV.
c. Calculate the IRR of each project and use it to determine thehighest cost of capital at which all of the projects would beacceptable.

Answer & Explanation Solved by verified expert

3.8 Ratings (455 Votes)

Present Value Future value 1rt where r is the interest rate that is 147 and t is the time period in years Net present value NPV initial investment sum of present values of future cash flows The internal rate of return is the rate of return for which the See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

NPV?, with rankings Botany? Bay, Inc., a maker of casual?clothing, is considering four projects shown in the following?table,Initial investment $50,100 $100,000 $80,100 $180,200Year Cash inflows 1 $20,600 $35,400 $20,800 $100,4002 $20,600 $51,500 $39,800 $79,3003 $20,600 $51,100 $60,700 $60,400Because of past financial? difficulties, the company has a highcost of capital at 14.7 %.a. Calculate the NPV of each? project, using a cost of capitalof 14.7 %.b. Rank acceptable projects by NPV.c. Calculate the IRR of each project and use it to determine thehighest cost of capital at which all of the projects would beacceptable.