Exam 8: Investment Decision Rules

Use the table for the question(s) below. Consider the following list of projects: -Assuming that your capital is constrained,what is the fifth project that you should invest in?

Use the information for the question(s) below. The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as detailed below: The appropriate discount rate for this project is 16%. -The profitability index for this project is closest to:

Use the information for the question(s) below. Your firm is preparing to open a new retail strip mall and you have multiple businesses that would like lease space in it. Each business will pay a fixed amount of rent each month plus a percentage of the gross sales generated each month. The cash flows from each of the businesses have approximately the same amount of risk. The business names, square footage requirements, and monthly expected cash flows for each of the businesses that would like to lease space in your strip mall are provided below: -If your new strip mall will have 15,000 square feet of retail space available to be leased,to which businesses should you lease and why?

In addition to the NPV rule that is used as an investment decision rule,we also use the following rules for single,stand-alone projects within the firm:

Which of the following statements is false?

Consider the following list of projects: You are given a budget of only $1,800,000 to invest in projects.Which projects will you select,in what order will you select them,and why?

Use the table for the question(s) below. Consider the following two projects: -Assume that projects Alpha and Beta are mutually exclusive.Which of the following statements is true regarding the investment decision tools' suitability for deciding between projects Alpha & Beta?

Use the table for the question(s) below. Consider a project with the following cash flows: -Assume the appropriate discount rate for this project is 15%.The payback period for this project is closest to:

Use the table for the question(s) below. Consider the following two projects: -The maximum number of incremental IRRs that could exist for project B over project A is?

Use the information for the question(s) below. Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%. -Which of the following statements is correct?

The maximum number of IRRs that could exist for project B is:

Use the information for the question(s) below. The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as detailed below: The appropriate discount rate for this project is 16%. -The NPV for this project is closest to:

Which of the following statements is false?

Consider two mutually exclusive projects A & B.If you subtract the cash flows of opportunity B from the cash flows of opportunity A,then you should

Use the table for the question(s) below. Consider the following two projects: -The payback period for project Beta is closest to:

Use the table for the question(s) below. Consider the following two projects: -Assume that projects A and B are mutually exclusive.What is the correct investment decision and the best rationale for that decision?

Use the information for the question(s) below. Larry the Cucumber has been offered $14 million to star in the lead role of the next three Larry Boy adventure movies. If Larry takes this offer, he will have to forgo acting in other Veggie movies that would pay him $5 million at the end of each of the next three years. Assume Larry's personal cost of capital is 10% per year. -The NPV of Larry's three-movie Larry Boy offer is closest to:

Use the information for the question(s) below. Larry the Cucumber has been offered $14 million to star in the lead role of the next three Larry Boy adventure movies. If Larry takes this offer, he will have to forgo acting in other Veggie movies that would pay him $5 million at the end of each of the next three years. Assume Larry's personal cost of capital is 10% per year. -The IRR for Larry's three movie deal offer is closest to:

Use the table for the question(s) below. Consider the following two projects: -The internal rate of return (IRR)for project Alpha is closest to:

Use the table for the question(s) below. Consider the following two projects: -The internal rate of return (IRR)for project B is closest to: