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tatyana61 [14]
3 years ago
11

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:0 1 2 3 4Project S -$1,000 $895.0

3 $250 $10 $5Project L -$1,000 $5 $260 $420 $802.50The company's WACC is 10.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.
Business
1 answer:
almond37 [142]3 years ago
7 0

Answer:

Project L is the better project as it has higher NPV and its IRR is 12.70%

Explanation:

- NPV of Project S as followed:

-1,000 + 895.03/(1+10.5%) + 250/(1+10.5%)^2 + 10/(1+10.5%)^3 + 5/(1+10.5%)^4 = $25.5

- NPV of Project L as followed:

-1,000 + 5/(1+10.5%) + 260/(1+10.5%)^2 + 420/(1+10.5%)^3 + 802.5/(1+10.5%)^4 = $67.

<u>=> Project L is the better Project as it has higher NPV.</u>

The IRR is the discount rate that puts the net present value of project's cash flows to 0 (zero).

- IRR of Project L as followed:

-1,000 + 5/(1+IRR) + 260/(1+IRR)^2 + 420/(1+IRR)^3 + 802.5/(1+IRR)^4 = 0 <=> IRR = 12.70%

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Leon exchanges an office building which he held as investment property for a bowling alley. His office building has a basis of $
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Answer:

According to Section 1031 of Internal Revenue Code, an exchange of like-kind property is referred to as like-kind exchange, if the exchange meets the following criteria:

  • The property should be exchanged only for the 'like-kind' (same class) property.
  • The 'like-kind' property that is in exchange should be either used in operations of business or held for investment purposes.
  • The exchange should be done under specific timing restrictions or requirements (for indirect exchanges through third parties).

Explanation:

A) Explanation: Since both the properties in exchange are real properties which are used in business, this is a like-kind exchange

B)  

Description                           Amount ($)

Fair market value of bowling alley   120,000

<u>Add: Mortgage value L is relieved off     40,000</u>

Amount reali7ed                      160,000

<u>Less: Adjusted basis             (175:000) </u>

<u>Realized loss by L                      (15,000) </u>

C) Explanation: Since the loss realized is due to exchange, the loss is not recognized.

D) Explanation: Since the loss is not recognized, the character of gain or loss could not be

E) Explanation: The total of realized loss, $15,000 (From Requirement (b)) is deferred.

F) Determine the basis of property acquired in exchange, bowling alley.

Description                         Amount ($)

Fair market value of bowling alley        120,000

<u>Add: Deferred loss                   15,000 </u>

<u>Basis of bowling alley                  135,000 </u>

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The winner of the first annual Tom Morris Golf Invitational won $105 in the competition which was held in 1899. In 2015, the win
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Future Value = $1460000

Present Value = $105

n = Number of Years = 116 Years

Future Value = Present Value * (1 + r)^n

1460000 = 105 * (1 + r)^116

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1.0857 = 1 + r

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Suppose that Verizon Wireless has hired you as a consultant to determine what price it should set for calling services. Suppose
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Answer:

The two optimal two part price that would be suggested to Verizon is Unit per Fee = $1 and Lump Sum fee or fixed fee = $99

Explanation:

Solution

For us fully maximize profit under two part price It should gives  that amount of wireless service at which P = MC and and also charge Lump sum fee or fixed fee equals to the consumers surplus that consumer will have.

Now,

marginal cost= MC  = 1 and P = 100 - 25Q.

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Now,

P = 100, When Q = 0 The Consumer surplus = (1/2)*base*height

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Therefore, Fixed fee or The Lump Sum fee = 99

However, the  Optimal two part pricing is denoted by:

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