Larissa Soroka, an analyst at ABC company, has been asked to prepare cash flow forecasts for two mutually exclusive investment projects related to new products. ABC’s management asks Soroka to include the cost of market research that was recently completed as well as the potential loss of revenue from existing products that could occur if either project is undertaken. Soroka presents the forecast in Exhibit 1 and is asked to calculate IRR and NPV for both projects. Investors in ABC have a required rate of return of 8%.
Exhibit 1
Cash Flow Forecast for Projects A and B
Time
0
1
2
3
4
Project A
(18.5)
4.5
6.0
6.0
5.5
Project B
(33.5)
(2.5)
(1.0)
24.0
25.5
ABC’s management asks Soroka to consider in her forecast the impact of a six-month delay in all future cash flows and estimate the impact of that event on IRR and NPV.
After reviewing the forecast, ABC’s management asks Soroka to estimate ABC’s ROIC for 20X2. ABC earned operating profit of $8,830, had an effective tax rate of 22%, and reported the balance sheet in Exhibit 2.
Exhibit 2
ABC Balance Sheet
(end-of-period values)
Assets:
20X1
20X2
Cash
1,600
1,720
Short-term assets
30,450
29,910
Long-term assets
60,250
62,060
Total assets
92,300
93,690
Liabilities and equity:
20X1
20X2
Accounts payable
12,930
11,620
Short-term debt
8,030
8,390
Long-term debt
25,040
25,910
Share capital
39,800
40,990
Retained earnings
6,500
6,780
Total liabilities and equity
92,300
93,690
ABC’s management has an ROIC objective of at least 9.2% and asks Soroka for her recommendation about the projects.
Question
Q. The most likely impact from the cash-flow timing considered by Soroka is that:
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选项
A.both IRR and NPV would decrease.
B.both IRR and NPV stay unchanged.
C.only IRR would decrease but NPV would increase.
D.
B.both IRR and NPV stay unchanged.
C.only IRR would decrease but NPV would increase.
D.
答案
解析
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