Exam 10: Capital Budgeting Techniques

What is the NPV for a project if its cost of capital is 0 percent and its initial after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3, and $1,300,000 in year 4?

A firm with a cost of capital of 13 percent is evaluating three capital projects. The internal rates of return are as follows: The firm should ________.

Mutually exclusive projects are those whose cash flows compete with one another; the acceptance of one eliminates the others from further consideration.

The payback period of a project that costs $1,000 initially and promises after-tax cash inflows of $300 each year for the next three years is 0.333 years.

The ranking approach involves the ranking of capital expenditure projects on the basis of some predetermined measure such as the rate of return.

Some firms use the payback period as a decision criterion or as a supplement to sophisticated decision techniques, because ________.

The NPV of a project with an initial investment of $1,000 that provides after-tax operating cash flows of $300 per year for four years where the firm's cost of capital is 15 percent is $856.49.