Exam 13: Weighing Net Present Value and Other Capital Budgeting Criteria

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project),rather than the gross return?

Compute the IRR for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 9 percent.

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 10 percent,and that the maximum allowable payback and discounted payback statistics for the project are three and a half and four and a half years,respectively.Use the PI decision to evaluate this project; should it be accepted or rejected?

Compute the payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 9 percent and the maximum allowable payback is four years.

Compute the NPV statistic for Project Y given the following cash flows and if the appropriate cost of capital is 12 percent. Project Y

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 8 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and three years,respectively. Use the MIRR decision rule to evaluate these projects; which one(s)should be accepted or rejected?

The benchmark for the profitability index (PI)is the:

Compute the PI statistic for Project Q and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12 percent. Project Q

Compute the NPV for Project X and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 12 percent,and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years,respectively. Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

Suppose your firm is considering two mutually exclusive,required projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 10 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three and a half years,respectively. Use the NPV decision rule to evaluate these projects; which one(s)should be accepted or rejected?

Compute the MIRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

Projects A and B are mutually exclusive.Project A costs $10,000 and is expected to generate cash inflows of $4,000 for four years.Project B costs $10,000 and is expected to generate a single cash flow in year 4 of $20,000.The cost of capital is 12 percent.Which project would you accept and why?

How many possible IRRs could you find for the following set of cash flows?

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project?

Suppose your firm is considering investing in a project with the cash flows shown as follows,that the required rate of return on projects of this risk class is 12 percent,and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years,respectively. Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?

Suppose your firm is considering two independent projects with the cash flows shown as follows.The required rate of return on projects of both of their risk class is 12 percent,and the maximum allowable payback and discounted payback statistic for the projects are two and a half and three years,respectively. Use the payback decision rule to evaluate these projects; which one(s)should be accepted or rejected?

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return,IRR,decision rule?

Of the capital budgeting techniques discussed,which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects?

Which of these is a capital budgeting technique that generates a decision rule and associated metric for choosing projects based on the total discounted value of their cash flows?