1. Budgeting decisions. Which of those three methods ignores the time value of money?
a.
Payback
b.
NPV
c.
IRR
d.
All of those methods ignore the time value of money - they are concerned with today's cash flow.
2 points (Extra Credit)
2.
A firm is considering buying a new computer-controlled cut-off machine. It costs $50,000. It will provide cash flows (profits) of $15,000 for five years. The payback is:
a.
1.5 years
b.
3.3 years
c.
5 years
d.
10 years
2 points (Extra Credit)
3.
A firm is evaluating three capital projects (1, 2 & 3, I know real original!). Each project costs $25,000. The NPV for project 1 = $35,000; for project 2 the NPV is $15,000 and for project 3 the NPV is a negative $10,000.
The firm should:
a.
Accept project 1, reject 2 & 3
b.
Accept projects 1 & 2; reject 3
c.
Accept project 3; reject 1 & 2
d.
Reject all three
2 points (Extra Credit)
4.
The firm has a cost of capital of 12%. Three projects are on the drawing board (A, B, & C). All are independent projects. . The IRRs of the three are respectively: 15%, 10%, -2%.
The firm should:
a.
accept A; reject B & C
b.
Accept A & B; reject C
c.
Accept all three
d.
Reject all three
2 points (Extra Credit)
5.
If the Net Present Value (NPV) is greater than the cost of capital, the project should be accepted.
True
False
1. Budgeting decisions. Which of those three methods ignores the time value of money?
| a. |
Payback |
|
| b. |
NPV |
|
| c. |
IRR |
|
| d. |
All of those methods ignore the time value of money - they are concerned with today's cash flow. |
2 points (Extra Credit)
2.
A firm is considering buying a new computer-controlled cut-off machine. It costs $50,000. It will provide cash flows (profits) of $15,000 for five years. The payback is:
| a. |
1.5 years |
|
| b. |
3.3 years |
|
| c. |
5 years |
|
| d. |
10 years |
2 points (Extra Credit)
3.
A firm is evaluating three capital projects (1, 2 & 3, I know real original!). Each project costs $25,000. The NPV for project 1 = $35,000; for project 2 the NPV is $15,000 and for project 3 the NPV is a negative $10,000.
The firm should:
| a. |
Accept project 1, reject 2 & 3 |
|
| b. |
Accept projects 1 & 2; reject 3 |
|
| c. |
Accept project 3; reject 1 & 2 |
|
| d. |
Reject all three |
2 points (Extra Credit)
4.
The firm has a cost of capital of 12%. Three projects are on the drawing board (A, B, & C). All are independent projects. . The IRRs of the three are respectively: 15%, 10%, -2%.
The firm should:
| a. |
accept A; reject B & C |
|
| b. |
Accept A & B; reject C |
|
| c. |
Accept all three |
|
| d. |
Reject all three |
2 points (Extra Credit)
5.
If the Net Present Value (NPV) is greater than the cost of capital, the project should be accepted.
True
False
Related textbook solutions
Related questions
Bader has been retained to analyze two proposed capital investment projects. projects X and Y. by Star Fashion LLC, a local specialty retailer. Project X is a sophisticated working capital and inventory control system based upon a powerful personal computer. called a system server and PC software specifically designed for inventory processing and control in the retailing business. Project Y is a similarly sophisticated working capital and inventory control system based upon a powerful personal computer and general-purpose PC software. Each project has a cost of S100,000, and the cost of capital for both projects is 12%. The projects' expected net cash flows are as follows:
Expected Net Cash Flow
| Years |
Project X |
Project Y |
| 0 |
($ 100,000) |
($100,000) |
| 1 | 65,000 | 35,000 |
| 2 | 30,000 | 35,000 |
| 3 | 10,000 | 35,000 |
| 4 | 10,000 | 35,000 |
A. Calculate each project's nominal payback period.
B. Calculate Net Present Value (NPV) and comment upon if the two projects are independent or interdependent.
