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

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?

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

Suppose two projects with normal cash flows,X and Y,have exactly the same required initial investment,but X has a longer payback.Can we say anything about X's IRR versus that of Y?

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

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 8 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 NPV decision 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 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?

Compute the MIRR statistic for Project I and note whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 15 percent. Project I

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 IRR decision rule to evaluate these projects; which one(s)should 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.

All capital budgeting techniques:

A company is considering two mutually exclusive projects,A and B)Project A requires an initial investment of $100, followed by cash flows of $95, $20, and $5.Project B requires an initial investment of $100, followed by cash flows of $0, $20, and $130.What is the IRR of the project that is best for the company's shareholders? The firm's cost of capital is 10 percent.

All of the following capital budgeting tools are suitable for non-normal cash flows EXCEPT:

All of the following are strengths of payback EXCEPT:

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 NPV decision to evaluate this project; should it be accepted or rejected?

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 MIRR 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?

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?

Compute the PI 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.

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 PI decision rule to evaluate this project; should it be accepted or rejected?

Rank the capital budgeting tools from best to worst.