Question 4 Your company has a cost of capital equal to 10%. If the following projects are mutually exclusive, and you only have the information that is provided, which should you accept?ABCEPayback (years)1525IRR18%20%20%12%NPV (Millions)$40$75$35$100a.Ab.Bc.Cd.B and Ce.E1 points Question 5 A project has an upfront cost of $100,000. The project’s WACC is 12 percent and its net present value is $10,000. Which of the following statements is most correct?a.The project should be rejected since its return is less than the WACC.b.The project’s internal rate of return is greater than 12 percent.c.The project’s modified internal rate of return is less than 12 percent.d.All of the above answers are correct.e.None of the above answers is correct.1 points Question 6 As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows:Project XProject ZYearCash FlowCash Flow0$100,000$100,000150,00010,000240,00030,000330,00040,000410,00060,000If Denver’s cost of capital is 15 percent, which project would you choose?a.Neither project.b.Project X, since it has the higher IRR.c.Project Z, since it has the higher NPV.d.Project X, since it has the higher NPV.e.Project Z, since it has the higher IRR.1 points Question 7 Two projects being considered are mutually exclusive and have the following projected cash flows:Project AProject BYearCash FlowCash Flow0$50,000$50,000115,6250215,6250315,6250415,6250515,62599,500If the required rate of return on these projects is 10 percent, which would be chosen and why?a.Project B because it has the higher NPV.b.Project B because it has the higher IRR.c.Project A because it has the higher NPV.d.Project A because it has the higher IRR.e.Neither, because both have IRRs less than the cost of capital.1 points Question 8 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 $150,000 today, and the firm’s cost of capital is 10 percent. Assume cash flows occur evenly during the year, 1/365th each day. What is the payback period for this investment?a.5.23 yearsb.4.86 yearsc.4.00 yearsd.6.12 yearse.4.35 years1 points Question 9 The Seattle Corporation has been presented with an investment opportunity which will yield endofyear 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 $150,000 today, and the firm’s cost of capital is 10 percent. What is the NPV for this investment?a.$135,984b.$ 18,023c.$219,045d.$ 51,138e.$ 92,1461 points Question 10 Alyeska Salmon Inc., a large salmon canning firm operating out of Valdez, Alaska, has a new automated production line project it is considering. The project has a cost of $275,000 and is expected to provide aftertax annual cash flows of $73,306 for eight years. The firm’s management is uncomfortable with the IRR reinvestment assumption and prefers the modified IRR approach. You have calculated a cost of capital for the firm of 12 percent. What is the project’s MIRR?a.15.0%b.14.0%c.12.0%d.16.0%e.17.0%1 points Question 11 Polk Products is considering an investment project with the following cash flows:YearCash Flow0$100,000140,000290,000330,000460,000The company has a 10 percent cost of capital. What is the project’s discounted payback?a.1.67 yearsb.1.86 yearsc.2.11 yearsd.2.49 yearse.2.67 years1 points Question 12 The capital budgeting director of Sparrow Corporation is evaluating a project which costs $200,000, is expected to last for 10 years and produce aftertax cash flows, including depreciation, of $44,503 per year. If the firm’s cost of capital is 14 percent and its tax rate is 40 percent, what is the project’s IRR?a. 8%b.14%c.18%d.5%e.12%1 points Question 13 A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below:The company’s cost of capital is 12 percent, and it can get an unlimited amount of capital at that cost. What is the regular IRR (not MIRR) of the better project, i.e., the project which the company should choose if it wants to maximize its stock price?a.12.00%b.15.53%c.18.62%d.19.08%e.20.46%1 points Question 14 Green Grocers is deciding among two mutually exclusive projects. The two projects have the following cash flows:Project AProject BYearCash FlowCash Flow0$50,000$30,000110,0006,000215,00012,000340,00018,000420,00012,000The company’s cost of capital is 10 percent (WACC = 10%). What is the net present value (NPV) of the project with the highest internal rate of return (IRR)?a.$ 7,090b.$ 8,360c.$11,450d.$12,510e.$15,2001 points Question 15 Braun Industries is considering an investment project which has the following cash flows:YearCash Flow0$1,0001400230035004400The company’s WACC is 10 percent. What is the project’s payback, internal rate of return, and net present value?a.Payback = 2.4, IRR = 10.00%, NPV = $600.b.Payback = 2.4, IRR = 21.22%, NPV = $260.c.Payback = 2.6, IRR = 21.22%, NPV = $300.d.Payback = 2.6, IRR = 21.22%, NPV = $260.e.Payback = 2.6, IRR = 24.12%, NPV = $300.1 points Question 16 Jackson Jets is considering two mutually exclusive projects. The projects have the following cash flows:Project AProject BYearCash FlowCash Flow0$10,000$8,00011,0007,00022,0001,00036,0001,00046,0001,000At what cost of capital do the two projects have the same net present value? (That is, what is the crossover rate?) [Hint: Subtract project Bâs cash flows from Project Aâs each year. Use the resulting stream of cash flows in your financial calculator to find IRR which is the crossover rate.]a.11.20%b.12.26%c.12.84%d.13.03%e.14.15%
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