FIN 3715 : Exam 3 Questions

12 views6 pages

azuremammoth471

15 Mar 2019

School

Department

Course

Professor

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Payback: which of the following of these is a capital budgeting decision? (big decisions regarding future operations of a firm) Deciding whether or not a newly invented product will be produced. 0 33680 (always negative, initial investment so money you are spending) Npv= -. 92 (negative cash flow we would not embrace this project) We can also calculate internal rate of return: irr=5. 755%, this tells use the rate that makes npv equal to 0. So if you require a return that is 5. 755 instead of 14, we would not have a negative. Irr=6: you"re considering two independent projects requiring cash flows requiring return of 12%. These are not mutually exclusive, so you can accept both if the npv"s are both positive. Both are positive so embrace them both: you are considering an investment wit the following cash flows, required return is. 3 1500 for paybacks simply subtract (year 0 is positive for paybacks) 3500-1500= 2000 (at the end of year one)

Related Questions

Capital budgeting criteria

A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:

0 1 2 3 4 5

Project A -$12,000 $4,000 $4,000 $4,000 $4,000 $4,000
Project B -$36,000 $11,200 $11,200 $11,200 $11,200 $11,200

Calculate NPV for each project. Round your answers to the nearest cent.
Project A $
Project B $

Calculate IRR for each project. Round your answers to two decimal places.
Project A %
Project B %

Calculate MIRR for each project. Round your answers to two decimal places.
Project A %
Project B %

Calculate payback for each project. Round your answers to two decimal places.
Project A years
Project B years

Calculate discounted payback for each project. Round your answers to two decimal places.
Project A years
Project B years

Assuming the projects are independent, which one or ones would you recommend?
-Select-
Only Project B would be accepted because NPV(B) > NPV(A).
Both projects would be accepted since both of their NPV's are positive.
Only Project A would be accepted because IRR(A) > IRR(B).
Both projects would be rejected since both of their NPV's are negative.
Only Project A would be accepted because NPV(A) > NPV(B).
Item 11

If the projects are mutually exclusive, which would you recommend?
-Select-
If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project A.
If the projects are mutually exclusive, the project with the highest positive MIRR is chosen. Accept Project A.
If the projects are mutually exclusive, the project with the shortest Payback Period is chosen. Accept Project A.
If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project B.
If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project B.
Item 12

Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
-Select-
The conflict between NPV and IRR is due to the relatively high discount rate.
The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity.
The conflict between NPV and IRR is due to the difference in the timing of the cash flows.
There is no conflict between NPV and IRR.
The conflict between NPV and IRR occurs due to the difference in the size of the projects.
Item 13

skybeaver388

A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1 2 3 4 5 Project A -$3,000 $1,000 $1,000 $1,000 $1,000 $1,000 Project B -$9,000 $2,800 $2,800 $2,800 $2,800 $2,800 a. Calculate NPV for each project. Round your answers to the nearest cent. Project A $ Project B $ Calculate IRR for each project. Round your answers to two decimal places. Project A % Project B % Calculate MIRR for each project. Round your answers to two decimal places. Project A % Project B % Calculate payback for each project. Round your answers to two decimal places. Project A years Project B years Calculate discounted payback for each project. Round your answers to two decimal places. Project A years Project B years b. Assuming the projects are independent, which one or ones would you recommend? -Select-Only Project A would be accepted because NPV(A) > NPV(B).Only Project B would be accepted because NPV(B) > NPV(A).Both projects would be accepted since both of their NPV's are positive.Only Project A would be accepted because IRR(A) > IRR(B).Both projects would be rejected since both of their NPV's are negative. c. If the projects are mutually exclusive, which would you recommend? If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project B.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project A.If the projects are mutually exclusive, the project with the highest positive MIRR is chosen. Accept Project A.If the projects are mutually exclusive, the project with the shortest Payback Period is chosen. Accept Project A.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project B. d. Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?

amaranthgerbil884

Capital budgeting criteria

A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:

Project A	-$3,000	$1,000	$1,000	$1,000	$1,000	$1,000
Project B	-$9,000	$2,800	$2,800	$2,800	$2,800	$2,800

Calculate NPV for each project. Round your answers to the nearest cent.
Project A $ {C}
Project B $ {C}

Calculate IRR for each project. Round your answers to two decimal places.
Project A {C}%
Project B {C}%

Calculate MIRR for each project. Round your answers to two decimal places.
Project A {C}%
Project B {C}%

Calculate payback for each project. Round your answers to two decimal places.
Project A {C} years
Project B {C} years

Calculate discounted payback for each project. Round your answers to two decimal places.
Project A {C} years
Project B {C} years

If the projects are mutually exclusive, which would you recommend?
-Select-If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project A.If the projects are mutually exclusive, the project with the highest positive MIRR is chosen. Accept Project A.If the projects are mutually exclusive, the project with the shortest Payback Period is chosen. Accept Project A.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project B.If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project B.Item 12

Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
-Select-The conflict between NPV and IRR is due to the relatively high discount rate.The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity.The conflict between NPV and IRR is due to the difference in the timing of the cash flows.There is no conflict between NPV and IRR.The conflict between NPV and IRR occurs due to the difference in the size of the projects.Item 13

salmontrout306

FIN 3715 : Exam 3 Questions

Document Summary

Get access

Related Documents

FIN 3715 Chapter : NPV Other Investment Criteria 2012

FIN 3715 Chapter Notes - Chapter 10: Capital Budgeting, Discounted Cash Flow, Investment

FIN 3715 : FIN 3715 Practice Test 2

Related Questions