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

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Use the PI decision to evaluate this project; should it 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 below if the appropriate cost of capital is 10 percent.

Which of the following tools is suitable for choosing between mutually exclusive projects?

All of the following capital budgeting tools are suitable for non-normal cash flows except ____.

Use the IRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Calculate the rate at which the follow projects' NPV profiles cross and explain when IRR will give the correct answer when choosing between these two mutually exclusive projects.

Use the discounted payback decision rule to evaluate this project; should it be accepted or rejected?

Compute the NPV for Project X and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 9 percent.

Rank the capital budgeting tools from best to worst.

Is the set of cash flows depicted below normal or non-normal? Explain.

This technique for evaluating capital projects tells how long it will take a firm to earn back the money invested in a project.

Use the PI decision rule to evaluate these projects; which one(s) should be accepted or rejected?

Use the IRR decision rule to evaluate these projects; which one(s) should be accepted or rejected?

A firm is evaluating a potential investment that is expected to generate cash flows of $100 in years 1 through 4 and $400 in years 5 through 7. The initial investment is $750. What is the payback for this investment?

Which of the following statements is correct regarding the NPV profile?

A graph of a project's ______ is a function of cost of capital.

A project costs $101,000 today and is expected to generate cash flows of $31,000 per year for the next 15 years. At what rate is the NPV equal to zero?

These are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive.

Use the IRR decision rule to evaluate this project; should it be accepted or rejected?

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