The IRR is the expected rate of return from the project over its life whereas the YTM Yield to Maturity is the rate of return the investor could earn if bond will be held till the maturity.
In order to make a choice among projects, those should be evaluated using different techniques of capital budgeting viz.
Before deciding among the projects firm looks for the alternatives. Comment 0 Step 7 of 55 Mutually exclusive projects: Step 1 of 55 a. Comment 0 Step 14 of 55 Mutually exclusive projects: The discount rate or required rate of return should be known to evaluate projects, if the chosen method is Profitability Index, Discounted Payback Period and Net Present Value.
Step 11 of 55 2 The IRR indicates the rate of return the firm could earn from the project. A project has two kinds of cash flows viz. This is because both projects have positive NPV. If both franchises are independent then both projects should be accepted.
In a project where cash flows are non-normal means cash outflows occur sometime during the project life, multiple IRR may occur and there is no way to know which IRR is correct.
Comment 0 Step 12 of 55 3 It is simple to apply. The discount rate is used to find the present value of cash flows of the project. Comment 0 e 1 Cross over rate is the rate at which the NPV of two projects will be equal, it is the IRR of the difference in the cash flows of two projects.
The NPV is considered as the most reliable method to evaluate projects. The difference between the mutually exclusive and independent projects is illustrated below.
Comment 0 Thus, the crossover rate is. If the available alternatives are competitor of each other, then all the available projects will be called mutually exclusive, and if there is no competition among available alternatives then the projects are called independent projects.
Thus, the change in cost of capital will not change the IRR of franchises. A positive NPV tells that the project will earn enough money to payout the initial cost and add value for the investors.
Comment 0 Step 6 of 55 Independent projects: If the present value of future cash flows will be greater than the initial investment in that case the NPV of project will be positive. Generally, cash outflows occur at the beginning of the project, as initial investment and cash inflows are dollar return from the project.
The project which has IRR greater than its required rate of return should be accepted. If projects are mutually exclusive then the project with the highest IRR should be accepted and others will be rejected.
Comment 0 Step 8 of 55 3 The cost of capita or required rate of return from the investment is used to determine the present value of future cash flows of the project.
Comment 0 Step 13 of 55 Independent projects: Capital budgeting can defined as the process of making choice among available investment alternatives. Enter values and formulas in spreadsheet as shown in the image below. Comment 0 Obtained results are shown below.Access Financial Management 3rd Edition Chapter 10 solutions now.
Our solutions are written by Chegg experts so you can be assured of the highest quality! FIN Chapter 10 Homework FIN - // Fall // Introduction to Financial Management // Dr.
Sylvia Hudgins // Old Dominion University // Fundamentals of Corporate Finance by Ross, Westerfield, and Jordan () 11th Edition, McGraw-Hill Connect // *Note to prospective students: avoid this professor at ALL costs. Financial Management - Chapter 10 - Free download as Word Doc .doc), PDF File .pdf), Text File .txt) or read online for free.
10 Principles of Financial Management The 10 simple principles that do not require knowledge of finance to understand. However, while it is not necessary to understand finance in order to understand these principles, it is necessary to understand these principles in order to understand finance.
View Homework Help - Chapter 10 homework from ACC at Lehman College, CUNY. 1 2 3 a Fraudulent financial reporting. c Confirm receivables, including the existence of any special terms with. Chapter 10 Homework - Graduate Financial Management Technology’s capital structure is as follows: Debt 35% Preferred Stock 15 Common Equity 50 The aftertax cost of debt is %; the cost of preferred stock is 10 %; and the cost of common equity (in the form of retained earnings) isDownload