๐Ÿท๏ธ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION โ†’
Log in
Economics
10
answers
0
watching
404
views
6 Jan 2018

A firm is deciding whether to undertake a proposed investment project. If the present value of the project is positive, based on the firm's opportunity cost of capital, then this indicates (mark all that apply):

A) Investment is profitable

B) Investment is not profitable

C) The project's iternal rate of return exceeds the opportunity cost of capital

D) The project's internal rate of return is less than the opportunity cost of capital

Watch
10
answers
0
watching
404
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
Already have an account? Log in
Share
9 Jun 2022
Already have an account? Log in
Share
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $90,000 and will generate net cah inflows of $19,000 per year for 11 years.

Part 1)

If the discount rate is 8 percent, then the project's NPV is $_______

The project should/should not be accepted because the NPV ispositive/negative and therefore adds/does not add value to the firm.

Part 2)

If the discount rate is 16 percent, then the project's NPV is $_______

The project should/should not be accepted because the NPV ispositive/negative and therefore adds/does not add value to the firm.

Part 3)

What is the projects internal rate of return? Should the project be accepted?

After-Tax Net Present Value and IRR (Non-MACRS Rules) eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $60,000 to purchase and install and $30,000 to operate each year. The system is estimated to be useful for four years. Management expects the new system to reduce by $62,000 a year the cost of managing inventories. The firmรขย€ย™s cost of capital is 10%.

Required
1. What is the net present value (NPV) of the proposed investment under each of the following independent situations?
a. The firm is not yet profitable and pays no taxes.
b. The firm is in the 30% income tax bracket and uses straight-line depreciation with no salvage value. Assume MACRS rules do not apply.
c. The firm is in the 30% income tax bracket and uses double-declining-balance depreciation with no salvage value. Assume MACRS rules do not apply.

2. What is the internal rate of return (IRR) of the proposed investment for situations 1(a) and 1(b) above?

***Please explain the math used to calculate the answers.***

True, false, or uncertain. (5 points each) Your grade will be based solely on your explanation.

1. Risk in economics and finance is the possibility of loss, which implies that standard deviation is an incorrect measure of risk.

2. On stock exchanges in the United States, there is only one type of order that can be placed: a market order.

3. If the efficient markets theory of stock prices is correct, technical analysis of stock prices is useless.

4. Bubbles are hard to predict.

5. According to the Capital Asset Pricing Model, the beta of a stock is the risk premium for holding a stock.

6. Internal rate of return is a better guide to choosing investments than present value.

7. A leveraged investment is riskier.

8. If Firm A has a higher beta than Firm B, then Firm A has a higher systematic risk than Firm B.

9. If firm C has a lower beta than Firm D, then Firm C has lower unsystematic (idiosyncratic) risk than Firm D.

10. A stock that is a 'castle in the air'ย€ย has a high expected return after its price has risen.

11. The net present value of a firm to shareholders is the present value of all revenue received by the firm.

12. The internal rate of return is the discount rate that results in the NPV being positive.

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in