Exam 11: Investment Decision Criteria

Project Eh! requires an initial investment of $50,000,and has a net present value of $12,000.Project B requires an initial investment of $100,000,and has a net present value of $13,000.The projects are proposals for increasing revenue and are not mutually exclusive.The firm should accept

Fitchminster Armored Car can purchase a new vehicle for $200,000 that will provide annual net cash flow over the next five years of $40,000,$45,000,$50,000,$55,000,$60,000.The salvage value of the vehicle will be $25,000.Assume that the vehicle is sold at the end of year 5.Calculate the NPV of the ambulance if the required rate of return is 9%.(Round your answer to the nearest $1. )

Discuss the merits and shortcomings of using the payback period for capital budgeting decisions.

If the project's internal rate of return is greater than or equal to zero,the project should always be accepted.

The IRR is the discount rate that equates the present value of the project's future net cash flows with the project's initial outlay.

A project has an initial outlay of $4,000.It has a single payoff at the end of Year 4 of $6,996.46.What is the IRR for the project (round to the nearest percent)?

Unlike the basic IRR method,the MIRR method allows the analyst to specify a reinvestment rate for positive cash flows.

Which of the following is considered to be a deficiency of the IRR?

Project Full Moon has an initial outlay of $30,000,followed by positive cash flows of $10,000 in year 1,$15,000 in year 2,and $15,000 in year 3.The project should be accepted if the required rate of return is

Which of the following is the correct equation to solve for the NPV of the project that has an initial outlay of $30,000,followed by three years of $20,000 in incremental cash inflow? Assume a discount rate of 10%.

Given the following annual net cash flows,determine the IRR to the nearest whole percent of a project with an initial outlay of $1,800. Year Net Cash Flow 1 $1,000 2 $750 3 $500

Project H requires an initial investment of $100,000 and the produces annual cash flows of $45,000 per year for each of the next 3 years.Project T also requires an initial investment of $100,000 and produces cash flows of $30,000 in year 1,$40,000 in year 2,and $70,000 in year 3.If the discount rate is 10% and the projects are mutually exclusive

WSU Inc.has various options for replacing a piece of manufacturing equipment.The present value of costs for option Ell is $84,000.Option Ell has a useful life of 5 years;annual operating costs were discounted at 9%.What is the equivalent annual cost?

Project Black Swan requires an initial investment of $115,000.It has positive cash flows of $140,000 for each of the next two years.Because of major demolition and environmental clean-up costs,cash flow for the third and final year of the project is $(170,000).

The Seattle Corporation has been presented with an investment opportunity which will yield cash flows of $30,000 per year in Years 1 through 4,$35,000 per year in Years 5 through 9,and $40,000 in Year 10.This investment will cost the firm $100,000 today,and the firm's cost of capital is 10%.Assume cash flows occur evenly during the year.

The IRR assumes that cash flows are reinvested at the cost of capital.

Project January has a NPV of $50,000,project December has a NPV of $40,000.Which of the following circumstances could make it possible to choose December over January?

Which of the following techniques might be useful in situations where mutually exclusive projects have unequal lives?

The required rate of return represents the cost of capital for a project.

Briefly describe the actual capital budgeting methods of large U.S.corporations.