QuestionAnswered step-by-stepQUESTION 111. Smith considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that if a project’s projected NPV is negative, it should be rejected. WACC = 10.5%.Year Cash Flow0 -$10001 $3502 $3503 $3504 $3502. $97.55 $103.98 $109.45 $114.93 $120.671 points?QUESTION 121. Tucker Corp. is considering project that has the following cash flow data. What is the project’s IRR? Note that a project’s projected IRR can be negative, in which case it will be rejected.Year Cash Flow0 -$10001 $5502 $5503 $5502. 15.82 % 16.65% 17.48% 18.36% 19.27%1 points?QUESTION 131. ABC Inc. is considering a project that has the following cash flow data. What is the projects payback?Year Cash Flow0 -$10001 $5002 $5003 $5002. 1.62 years 1.80 years 2.00 years 2.20 years 2.42 years1 points?QUESTION 141. Rangle Inc. is considering a project that has the following cash flows:Year Cash Flow0 -$10001 $4002 $3003 $5004 $4002. The company’s WACC is 10%. What are the project’s payback, internal rate of return, and net present value?3. Payback = 2.4, IRR = 10.00% NPV = $600. Payback = 2.4, IRR = 21.22%, NPV = $260. Payback = 2.6, IRR = 21.22%, NPV = $300. Payback = 2.6, IRR = 21.22%, NPV = $260. Payback = 2.6, IRR = 24.12%, NPV = $300.1 points?QUESTION 151. Joe is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s projected NPV can be negative, in which case it will be rejected. WACC = 10%Year Cash Flow0 -$10001 $4502 $4603 $4702. $142.37 $149.49 $156.97 $164.82 $173.061 points?QUESTION 161. Fang Inc. is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s projected NPV can be negative, in which case it will be rejected. WACC = 10%.Year Cash Flow0 -$9501 $5002 $4003 $3002. $54.62 $57.49 $60.52 $63.54 $66.721 points?QUESTION 171. Joan is considering a project that has the following cash flow and WACC data. What is the project that has the following cash flow and WACC. What is the project’s NPV? Note that a project’s projected NPV can be negative, in which case it will be rejected. WACC = 10%.Year Cash Flow0 -$10001 $4002 $4053 $4104 $4152. $190.16 $211.29 $234.77 $260.85 $289.841 points?QUESTION 181. Projects A and B have identical expected lives and identical initial cash outflows (costs). However, most of one project’s cash flows come in the early years, while most of the other project’s cash flows occur in the later years. The two NPV profiles are given below:?2. ?Which of the following statements is CORRECT?3. More of Project A’s cash flows occur in the later years. More of Project B’s cash flows occur in the later years. We must have information on the cost of capital in order to determine which project has the larger early cash flows. d. The NPV profile graph is inconsistent with the statement made in the problem. The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project’s IRR.1 points?QUESTION 191. Projects S and L both have an initial cost of $10,000, followed by a series of positive cash inflows. Project S’s undiscounted net cash flows total to $20,000, while L’s total undiscounted flows are $30,000. At a WACC of 10%, the two projects have identical NPVs. Which project’s NPV is more sensitive to changes in the WACC?2. Project L. Project S. Both projects are equally sensitive to changes in the WACC since their NPVs are equal at all costs of capital. Neither project is sensitive to changes in the discount rate, since both have NPV profiles hat are horizontal. The solution cannot be determined because the problem gives us no information that can be used to determine the projects’ relative IRRs.1 points?QUESTION 201. Mike Company is considering a project that has the following cash flow and WACC data. What is the projects’ NPV? Not that a project’s projected NPV can be negative, in which case it will be rejected. WACC = 10%.Year Cash Flow0 -$12001 $4002 $3953 $3904 $3855 $3802. $253.81 $282.01 $310.21 $341.23 $375.351 points?QUESTION 211. Joey Inc. is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s projected IRR can be less than the WACC (and even negative), in which case it will be rejected.Year Cash Flow0 -$10001 $4502 $4703 $4902. 13.89% 15.43% 17.15% 19.05% 20.96%1 points?QUESTION 221. XYZ Inc. is considering a project that has the following cash flow data. What is the project’s IRR? Note the project’s projected IRR can be less than the WACC (and even negative), in which case it will be rejected.Year Cash Flow0 -$6501 $2502 $2303 $2104 $1902. 14.04% 15.44% 16.99% 18.69% 20.56%1 points?QUESTION 231. Yogi Inc. is considering the following mutually exclusive projects:2. Project A Project BYear Cash Flow Cash Flow0 -$5,000 -$5,0001 200 3,0002 800 3,0003 3,000 8004 5,000 2003. ??????????????At what cost of capital will the net present value of the two projects be the same? (That is, what is the “crossover” rate?)4. 15.68% 16.15% 16.74% 17.33% 17.80%1 points?QUESTION 241. Awesome Kick is a big football star who has been offered contracts by two different teams. The payments (in millions of dollars) under the two contracts are shown below:2. Team A Team BYear Cash Payment Cash Payment0 $8.0 $2.51 4.0 4.02 4.0 4.03 4.0 8.04 4.0 8.03. Awesome plans to accept the contract that provides him with the highest net present value. At what discount rate would he be indifferent between the two contracts?4. 10.85% 11.35% 12.66% 13.98% 15.01%1 points?QUESTION 251. Bill is considering a project that has the following cash flow data. What is the project’s payback?Year Cash Flow0 -$10001 $3002 $3103 $3204 $3305 $3402. 2.11 years 2.34 years 2.60 years 2.89 years 3.21 years1 points?QUESTION 261. Garvin Enterprises is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback? WACC = 10%.Year Cash Flow0 -$10001 $5002 $5003 $5002. 2.12 years 2.35 years 2.59 years 2.85 years 3.13 years1 points?QUESTION 271. Camel Rides is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback? WACC = 10%.Year Cash Flow0 -$10001 $5252 $4853 $4454 $4052. 1.72 years 1.92 years 2.13 years 2.36 years 2.60 years1 points?QUESTION 281. Jack and Jill wants to invest in a new computer system, and management has narrowed the choice to Systems A and B.System A requires an up-front cost of $100,000, after which it generates positive after-tax cash flows of $60,000 at the end of each of the next 2 years. The system could be replaced every 2 years, and the cash inflows and outflows would remain the same.System B also requires an up-front cost of $100,000, after which it would generate positive after-tax cash flows of $48,000 at the end of each of the next 3 years. System B can be replaced every 3 years, but each time the system is replaced, both the cash outflows and cash inflows would increase by 10%.The company needs a computer system for 6 years, after which the current cost of the capital is 11%. What is the NPV (on a 6-year extended basis) of the system that adds the most value?2. $17,298.30 $22,634.77 $31,211.52 $38,523.43 $46,143.211 points?QUESTION 291. Reynolds Company is considering two mutually exclusive machines.Machine A has an up-front cost of $100,000 (CF0 = -100,00), and it produces positive after-tax cash inflows of $40,000 a year at the end of each of the next 6 years.Machine B has an up-front cost of $50,000 (CF0 = -50,000), and it produces after-tax cash inflows of $30,000 a year at the end of the next 3 years. After 3 years, machine B can be replaced a cost of $55,000 (paid at t = 3). The replacement machine will produce after-tax cash inflows of $32,000 a year for 3 years (inflow received at t = 4, 5, and 6).The company’s cost of capital is 10.5%. What is the net present value (on a 6-year extended basis) of the more profitable machine?2. $23,950 $41,656 $56,238 $62,456 $71,6871 points?QUESTION 301. Last week, Radiant Systems Inc. decided to accept the project whose cash flows are shown below. However, before actually starting the project, the Federal Reserve took actions that lowered interest rates and therefore Radiant’s WACC. By how much did the change in the WACC affect the projects’ forecasted NPV? Assume that the Fed action does not affect the cash flows, and note that a project’s projected NPV can be negative, in which case it should be rejected. New WACC = 8%, and old WACC = 11%.Year Cash Flow0 -$10001 $5002 $5003 $5002. $57.18 $60.19 $63.36 $66.69 $70.031 points?QUESTION 311. ABC is considering a project that has the following cash flows:Year Cash Flow0 CF0=?1 20002 30003 30004 15002. The project has a payback of 2.5 years, and the firm’s cost of capital is 12%. What is the project’s NPV?3. $577.68 $765.91 $1,019.80 $2,761.32 $3,765.911 points?QUESTION 321. Danny Inc. is consider two projects that have the following cash flows:2. Project 1 Project 2Year Cash Flow Cash Flow0 -$2,000 -$1,9001 500 1,0002 700 9003 800 8004 1,000 6005 1,000 4003. ???????????????t what cost of capital would the two projects have the same net present value?4. 4.73% 5.85% 6.70% 7.50% 8.20%1 points?QUESTION 331. KMG is considering two mutually exclusive projects that have the following cash flows:2. Project A?Project BYear Cash Flow Cash Flow0 -$10,000 -$8,0001 1,000 7,0002 2,000 1,0003 6,000 1,0004 6,000 1,0003. ?????????????????At what cost of capital do the two projects have the same net present value? (That is, what is the crossover rate?)4. 11.20% 12.26% 12.54% 13.03% 14.15%1 points?QUESTION 341. No Leak Roofing is considering mutually exclusive Projects A and B, which have the following cash flows:2. Project A Project BYear Cash Flow Cash Flow0 -$200 -$3001 20 902 30 703 40 604 50 505 60 403. What cost of capital would the two projects have the same net present value (NPV)?4. 6.22% 7.11% 8.45% 9.32% 10.32%1 points?QUESTION 351. Letrik Systems is considering a project that has the following cash flow and WACC data. What is the project’s MIRR? Note that a project’s projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC = 10%.Year Cash Flow0 -$8001 $3502 $3503 $3502. 8.62% 9.58% 10.64% 11.82% 13.14%1 points?QUESTION 361. Hammer Inc. is considering a project that has the following cash flow and WACC data. What is the project’s MIRR? Note that a project’s projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC = 10%.Year Cash Flow0 -$9001 $3002 $3203 $3404 $3602. 12.61% 14.01% 15.41% 16.95% 18.64%1 points?QUESTION 371. A firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO wants to use the IRR criterion, while the CFO favor the NPV method, and you were hired to advise the firm on the best procedure. If the CEO’s preferred criterion is used, how much value will the firm lose as a result of this decision? WACC = 13%.Year CFs CFL0 -$1025 -$21501 $375 $7502 $380 $7593 $385 $7684 $390 $7772. $5.83 $6.14 $6.46 $6.79 $7.131 points?QUESTION 381. Ray Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the one with the higher IRR will also have the higher NPV, so no value will be lost if the IRR method is used. WACC = 10%.Year CFs CFL0 -$2050 -$43001 $750 $15002 $760 $15183 $770 $15364 $780 $15542. $146.59 $154.30 $162.42 $174.67 $187.601 points?QUESTION 391. Deyland Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. WACC = 9%.Year CFs CFL0 -$1100 -$22001 $375 $7252 $375 $7253 $375 $7254 $375 $7252. $24.71 $27.46 $30.51 $33.90 $37.291 points?QUESTION 401. Zerro Products is considering Projects Sand L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates the MIRR. If the decision is made by choosing the project with the higher IRR rather than the one with the higher MIRR, how much, if any, value will be forgone? Note that under some conditions the choice will have no effect on the value gained or lost. WACC = 10%.Year CFs CFL0 -$1100 -$27001 $550 $6502 $600 $7253 $100 $8004 $100 $1400 -$1.60 -$1.44 -$1.30 $0.00 $1.601 points?QUESTION 411. Projects A and B each have an initial cost of $5,000, followed by a series of positive cash inflows. Project A has total undiscounted cash inflows of $12,000, while B has total undiscounted inflows of $10,000. Further, at a discount rate of 10 percent , the two projects have identical NPVs. Which project’s NPV will be more sensitive to changes in the discount rate? (Hint: projects with steeper NPV profiles are more sensitive to discount rate changes.)2. Project A Project B Both projects are equally sensitive to changes in the discount rate since their NPVs are equal at all costs of capital. Neither project is sensitive to changes in the discount rate, since both have NPV profiles which are horizontal. The solution cannot be determined unless the timing of the cash flows is known.1 points?QUESTION 421. Which of the following statements is most correct?2. The IRR of a project whose cash flow accrue relatively rapidly is more sensitive to changes in the discount rate than is the IRR of a project whose cash flows come in more slowly. There are many conditions under which a project can have more than one IRR. One such condition is where an otherwise normal project has a negative cash flow at the end of its life. The phenomenon called “multiple internal rates of return” arises when two or more mutually exclusive projects that have different lives are being compared. The modified IRR (MIRR) method has wide appeal to professors, but most business executives prefer the NPV method to either the regular or modified IRR. Each of the above statements is false.1 points?QUESTION 431. Which of the following statements is most correct?2. If a project has an IRR greater than zero, then taking on the project will increase the value of the company’s common stock because the project will make a positive contribution to net income. If a project has an NPV greater than zero, then taking on the project will increase the value of the firm’s stock. Assume that you plot the NPV profiles of two mutually exclusive projects with normal cash flows and that the cost of capital is greater than the rate at which the profiles cross one another. In this case, the NPV and IRR methods will lead to contradictory rankings of the two projects. For independent (as opposed to mutually exclusive) normal projects, the NPV and IRR methods will generally lead to conflicting accept/reject decisions. Statements b, c and d are true.1 points?QUESTION 441. Which of the following statements is most correct?2. Underlying the MIRR is the assumption that cash flows can be reinvested at the firm’s cost of capital. Underlying the IRR is the assumption that cash flows can be reinvested at the firm’s cost of capital. Underlying the NPV is the assumption that cash flows can be reinvested at the firm’s cost of capital. The discounted payback method always leads to the same accept/reject decisions as the NPV method. Statements a and c are correct.1 points?QUESTION 451. Your firm is considering a fast-food concession at the World’s Fair. The cash flow pattern is somewhat unusual since you must build the stands, operate them for 2 years, and then tear the stands down and restore the sites to their original conditions. You estimate the net cash flows to be as follows:Time Expected Net Cash Flows0 ($800,000)1 $700,0002 $700,0003 ($400,000)2. What is the approximate IRR of this venture?3. 5% 15% 25% 35% 45%1 points?QUESTION 461. Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below:Year Project X Project Y0 ($2,000) ($2,000)1 200 20002 600 2003 800 1004 1400 1002. The projects are equally risky, and their cost of capital is 10 percent. You must make a recommendation, and you must base it on the modified IRR. What is the MIRR of the better project?3. 11.50% 12.00% 11.70% 12.50% 13.10%1 points?QUESTION 471. A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below:Year Project S Project L0 ($2,000) ($2,000)1 1800 02 500 5003 20 8004 20 16002. The company’s cost of capital is 9 percent, and it can get an unlimited amount of capital at that cost. What is the regular IRR (not MIRR) of the better project? (Hint: Note that the better project may or may not be the one with the higher IRR.)3. 11.45% 11.74% 13.02% 13.49% 12.67%1 points?QUESTION 481. Assume that your company has a cost of capital of 14 percent that that it is analyzing the following project:Year Cash Flow0 ($250)1 $1402 $1403 $1704 ($100)2. What are the project’s IRR and MIRR?3. 24.26%; 16.28% 23.12%; 17.19% 23.12%; 16.28% 24.26%; 17.19% None of the above1 points?QUESTION 491. You are evaluating a project that is expected to produce cash flows of $5,000 each year for the next 10 years and $7,000 each year for the following 10 years. The IRR of this 20-year project is 12%. If the firm’s WACC is 8%, what is the project’s NPV?2. $10,989.95 $12,276.33 $14,321.21 $15,100.50 $16,000.001 points?QUESTION 501. A project has the following cash flows:Year Cash Flow0 ($250)1 $1002 (X)3 $1504 $2755 $3002.Notice this project requires two cash outflows at Years 0 and 2, and produces positive cash inflows in the remaining periods. The project’s appropriate WACC is 10% and its modified internal rate of return (MIRR) is 13.50%. What is the value of the project’s cash outflow in Year 2?3. $295.20 $243.96 $375.00 $493.96 $288.75AccountingBusinessFinancial AccountingFINC 5310Share Question
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