Information You will be evaluating three projects for Hasbro Toys. Hasbro\'s cos
ID: 2655987 • Letter: I
Question
Information
You will be evaluating three projects for Hasbro Toys. Hasbro's cost of capital or discount rate is 8%.
The first project (A) will cost $200,000 initially. The project will then return cash flows of $50,000 for 5 years.
The second project (B) will cost $250,000 initially. The project will then return cash flows of $115,000 for the next 2 years and $30,000 for 2 years after that.
The third project (C) will cost $100,000 initially. The project will then return cash flows of $39,000 for 3 years.
Question 1
What is Project A's NPV?
Question 2
What is Project A's IRR?
Question 3
What is Project A's Payback Period?
Question 4
What is Project A's PI?
Question 5
What is Project B's NPV?
Question 6
What is Project B's IRR?
Question 7
What is Project B's Payback Period?
Question 8
What is Project B's PI?
Question 9
What is Project C's NPV?
Question 10
What is Project C's IRR?
Question 11
What is Project C's Payback Period?
Question 12
What is Project C's PI?
Question 13
If all three projects are INDEPENDENT, which project(s) would you ACCEPT?
A) Project A
B) Project B
C) Project C
D) Projects A and B
E) Projects A and C
F) Projects B and C
G) Projects A, B, and C
Question 14
If all three projects are MUTUALLY EXCLUSIVE, which project(s) would you ACCEPT?
A) Project A
B) Project B
C) Project C
D) Projects A and B
E) Projects A and C
F) Projects B and C
G) Projects A, B, and C
Explanation / Answer
Question 1 Project A's NPV $ -364 Question 2 Project A's IRR 7.94% Question 3 Project A's Payback Period 4 Years Question 4 Project A's PI 0.998 Workings: Cash flows Year Project A Project B Project C 0 $ -2,00,000 $ -2,50,000 $ -1,00,000 1 50,000 1,15,000 39,000 2 50,000 1,15,000 39,000 3 50,000 30,000 39,000 4 50,000 30,000 5 50,000 Project A At 8% At 5% Year Cash flows Discount factor Present Value Year Cash flows Discount factor Present Value 1 50,000 0.9259 46,296 1 50,000 0.9524 47,619 2 50,000 0.8573 42,867 2 50,000 0.9070 45,351 3 50,000 0.7938 39,692 3 50,000 0.8638 43,192 4 50,000 0.7350 36,751 4 50,000 0.8227 41,135 5 50,000 0.6806 34,029 5 50,000 0.7835 39,176 Total 1,99,636 Total 2,16,474 Less:Initial cost -2,00,000 Less:Initial cost -2,00,000 Net Present Value -364 Net Present Value 16,474 PI = Present value of cash inflows /Initial cost = 1,99,636 / 2,00,000 = 0.998 IRR = 5%+(8%-5%)*(16474/(16474+364)) = 7.94% IRR is the rate at which NPV is zero. Payback period is the time upto which initial cost is recovered back, Payback Period = Initial cost/Annual cash inflows = 200000 / 50000 = 4.00