Question 11: Pointvance Inc. Is Considering Investing

Question 11 Pointvance Incorporated Is Considering Investing In A Pr

Question 11 Pointvance Incorporated Is Considering Investing In A Pr

Question 1 (1 point) Vance incorporated is considering investing in a project with the following expected cash flows: -124, 89, 37, 27. If Vance's expected cost of capital is 0.10, what is the expected NPV of the project? Your Answer: Question 1 options: Answer Question 2 (1 point) A company invests -$100k in a new project and expects the following cash flows: Year 1 $50k, Year 2 $30k, year 3 $40k. What is the company's expected IRR? Question 2 options: 10.18% 9.34% 11.15% 6.17% Question 3 (1 point) Heinlein Inc is considering investing in a project with a cost of $100k. If the project is expected to produce cash flows of $50k in year 1, $134k in year 2, and $208k in year 3, what is the payback period. Your Answer: Question 3 options: Answer Question 4 (1 point) Vance LLC is considering investing in the following projects. Vance's WACC is 9.5%. Which of the following projects should Vance accept? More than one answer is possible. Question 4 options: A. IRR 11% B. IRR 9% C. IRR 10% D. IRR 8% Question 5 (1 point) Heinlein Inc is considering investing in a project with a cost of $100k. The project is expected to produce cash flows of $50 in year 1, 85 in year 2, and 235 in year 3. If the discount rate is 0.10 what is the discounted payback period. Your Answer: Question 5 options: Answer Question 6 (1 point) Which of the following is correct? Question 6 options: The MIRR and the IRR methods always give the same result. The NPV and the IRR methods always give the same result. The NPV and the MIRR methods always give the same result. The IRR and the MIRR methods always give the same result. Question 7 (1 point) Which of the following is correct? Question 7 options: If the cost of capital is 5% project 1 should be accepted. If the cost of capital is 10% project 1 should be accepted. If the cost of capital is 12% project 1 should be accepted. If the cost of capital is 5% project 2 should be accepted. Question 8 (1 point) If the Present Value of all estimated futures costs of a 10 year new investment project is 140, and the future value of all expected profits is 190, what is the projects MIRR? Your Answer: Question 8 options: Answer Question 9 (1 point) Which of the following statements is correct? Question 9 options: Project 1 has larger cash flows in later time periods than project 2. Project 2 has larger cash flows in later time periods than project 1. There is no way of telling from the graph where the cash flows take place. The price of long term bonds is more sensitive to interest rate changes than the price of short bonds. Question 10 (1 point) Project Salerino has the following cash flows: CF0 = -100, C01 = -150, C02 = 330, C03 = 690, C04 = -40. What is the PV of only the costs to Salerino if the cost of capital is 0.09? Your Answer: Question 10 options: Answer 3 oSs_ False oSs_ oSs_ False oSs_

Paper For Above instruction

Pointvance Incorporated is contemplating an investment project with anticipated cash flows of -124, 89, 37, and 27 over a four-year horizon, at a cost of capital of 10%. To evaluate this project, we need to compute the Net Present Value (NPV), which measures the profitability of an investment by discounting future cash flows to their present value and subtracting the initial investment. The NPV formula is applicable here: NPV = (Cash Flow in Year 1 / (1 + r)^1) + (Cash Flow in Year 2 / (1 + r)^2) + ... + (Cash Flow in Year n / (1 + r)^n) - Initial Investment. Plugging in these values: NPV = (-124 / (1 + 0.10)^1) + (89 / (1 + 0.10)^2) + (37 / (1 + 0.10)^3) + (27 / (1 + 0.10)^4). Calculating each component yields: -124 / 1.10 ≈ -112.73, 89 / 1.21 ≈ 73.55, 37 / 1.331 ≈ 27.80, 27 / 1.4641 ≈ 18.44. Summing these results: -112.73 + 73.55 + 27.80 + 18.44 ≈ 6.06. Therefore, the approximate NPV of the project is $6.06, indicating a marginally profitable investment.

For the second scenario, the company invests $100,000 in a project with cash inflows of $50,000, $30,000, and $40,000 over three years. To determine the company's expected Internal Rate of Return (IRR), we solve for the rate r satisfying the equation: -100,000 + (50,000 / (1 + r)^1) + (30,000 / (1 + r)^2) + (40,000 / (1 + r)^3) = 0. Using iterative methods or financial calculators, the IRR is approximately 9.34%. This rate signifies the annualized return the project is expected to generate, and since it is below typical required rates, the project may be marginally acceptable depending on the company's threshold.

Regarding the payback period for Heinlein Inc's project costing $100,000 with cash flows of $50,000, $134,000, and $208,000 in the subsequent years, the payback period is calculated as the time needed for cumulative cash flows to recover the initial investment. The total cash flows over Year 1 and Year 2 sum to $184,000, surpassing the initial cost of $100,000 within Year 2. Specifically, after Year 1, $50,000 is recovered; the remaining $50,000 is recovered during Year 2, where the inflow is $134,000. Taking the proportionate part of Year 2: time needed = 1 + ($50,000 / $134,000) ≈ 1 + 0.373, totaling approximately 1.37 years. Thus, the payback period is approximately 1.37 years.

When evaluating multiple projects for Vance LLC, with a weighted average cost of capital (WACC) of 9.5%, the decision rule is to accept projects with IRR exceeding this rate. Among the options—IRRs of 11%, 9%, 10%, and 8%—the projects with IRRs of 11%, 10%, and 9% should be accepted, as their IRRs surpass the WACC. The project with an IRR of 8% should typically be rejected, as its return falls below the hurdle rate.

The Modified Internal Rate of Return (MIRR) and the Internal Rate of Return (IRR) methods can produce different results because MIRR accounts for the cost of capital and reinvestment rate assumptions, often leading to more conservative assessments. Similarly, while NPVs and IRRs are related, they do not always give identical signals, especially when projects differ in size or timing of cash flows. As such, the statement that NPV and IRR always give the same result is incorrect, and MIRR and IRR generally do not always yield the same outcomes.

Project acceptance depends heavily on the cost of capital; a project that is acceptable at a lower discount rate may become unacceptable at a higher one. For example, if Project 1's IRR exceeds 10%, it should be accepted when the capital cost is below its IRR. However, if the capital cost exceeds its IRR, it should be rejected. Therefore, the decision is sensitive to the discount rate used, emphasizing the importance of accurate cost estimations during project screening.

The Modified Internal Rate of Return (MIRR) is calculated using the formula: MIRR = (Future Value of positive cash flows / Present Value of costs)^(1/n) - 1. Given a future value of profits of 190 and a present value of costs of 140 over ten years, the MIRR would be calculated as follows: MIRR = (190 / 140)^(1/10) - 1 ≈ (1.357)^(0.1) - 1 ≈ 1.0303 - 1 ≈ 0.0303 or 3.03%. This indicates a modest annualized return on the investment, accounting for the reinvestment of cash flows.

Analyzing cash flow timing, Project 1 has larger cash flows in later periods compared to Project 2, indicating potentially more growth or expansion capacity in subsequent years. The sensitivity of long-term bond prices to interest rates is greater than that of short-term bonds because of the longer duration, making bond prices more volatile in response to fluctuations in interest rates.

For Project Salerino, with cash flows: CF0 = -100, C01 = -150, C02 = 330, C03 = 690, C04 = -40, and a cost of capital of 9%, the present value of costs includes CF0 and C01, which are the initial investments and cash outflows. Calculating the present value of these costs: PV = CF0 + C01 / (1 + 0.09)^1 = -100 + (-150) / 1.09 ≈ -100 - 137.61 ≈ -237.61. This reflects the current value of the total costs excluding future inflows.

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