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What is the basic net present value (NPV) investment rule? More than one answer may be correct. Multiple select question. Accept a project if the discount rate is above zero Reject a project if its NPV is less than zero Accept a project if its NPV is less than zero If a project's NPV is equal to zero, a firm would be indifferent to accepting or rejecting the project. Accept a project if its NPV is greater than zero

(a) If you apply the payback decision rule, which investment will you choose? Why? (b) If you apply the NPV decision rule, which investment will you choose? Why?  (c) If you apply the IRR decision rule, which investment will you choose? Why? (d) Based on your answers of (a) to (c), which project will you (eventually) choose? Why?

What are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?

What should a manager do with a project that has two internal rates of return (IRRs)? O a. Do the project if the higher of the two IRRs exceeds the cost of capital. O b. Do the project if the lower of the two IRRS exceeds the cost of capital. Oc. Choose the IRR that looks the most reasonable, and do the project if this chosen IRR is greater than the cost of capital. Od. Abandon the project, as it involves unconventional cash flows. O e. Do the project if the net present value of the project is greater than zero.

In a few sentences, answer the following question as completely as you can. According to your textbook, “an investment should be accepted if the net present value is positive and rejected if it is negative” (p. 239). What does an NPV of zero mean?If you were a financial decision maker facing a project with NPV of zero (or close to zero) what would you do? Can you think of any other factors that might influence your decision?

4. Introduction to real options Consider the following statement about real options: Sometimes real options can give managers the flexibility to decide to invest in a project or wait to make a more calculated decision.   True or False: The preceding statement is correct. False   True     Which type of real option allows the output and/or inputs in the production process to be altered, depending on how market conditions change during a project’s life? A. Expansion option   B. Flexibility option   C. Abandonment option   D. Timing option     Consider the following example:   Clemens Inc. is considering a $100 million investment in a new line of soft drinks. However, $100 million is a huge investment for Clemens; if things turn bad, it could wipe out the company. A few senior managers have suggested a smaller investment of $20 million to see if the market is as strong as they hope it is. If demand is strong and the opportunity is still…

Which of the following statements is CORRECT?   a.  An NPV profile graph shows how a project's payback varies as the cost of capital changes.   b.  The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.   c.  An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.   d.  An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.   e.  We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV. Provide explanation for the choice

Question 5: Find the net present value, interpret whether the NPV suggests you should accept or reject the project, find the payback period, find the discounted payback period, find the profitability index, interpret whether the profitability index suggests you should accept or reject the project, find the internal rate of return, explain whether the internal rate of return can repay the cost of borrowing money to conduct the project, find the modified internal rate of return, and explain with the modified internal rate of return can repay the cost of borrowing money to conduct the project. All for the following situation: The initial capital outlay is $175,000, the first-year annual operating cash flow is projected to be 20,000 but should grow by 5% per year during each of the project's 30 years, the after-tax-salvage cash flow is guessed to be $500,000, the required rate of return on this project is 15.50% and the company weighted average cost of capital is 12.50%.

List situations when using the FCFE model to value the equity of a project would not be ok

Indicate whether its True or False. Then write the explanation!   The twin advantages with using the IRR method as opposed to the NPV method for project evaluation is that you don’t need to worry about what an appropriate risk- adjusted discount rate might be for the project and you will always get the correct answer to the investment decision.

11. Which one of the following statements is most CORRECT?   a. Real options change the risk, but not the size, of projects' expected NPVs.     b. Very few projects have real options. They are theoretically interesting but of little practical importance.     c. Real options are more valuable when there is very little uncertainty about the true values of future sales and costs.     d. Real options change the size, but not the risk, of projects' expected NPVs.     e. Real options can reduce the cost of capital that should be used to discount a project's expected cash flows.

Answer the two questions below:a) What is the purpose of a project risk analysis, and why is it important in investment decision making?b) What is the difference between accounting break-even and NPV break-even? Which will offer the higher break-even level of output, and why?

Which of the following contributes positively to the value of a real option to delay investment? First-mover competitive advantages It lowers idiosyncratic risk, and thus the firm's cost of capital Delaying project revenues, due to TVM The likely resolution of some uncertainty

QUESTION 5 The net present value of a project tells management what decision to make on that investment. If the net present value is negative, management should: O accept the project because the cost is less than the revenue, thereby adding value to the firm. O reject the project because the present value of future cash-flows is greater than the cost of the project. O reject the project because accepting would reduce the value of the firm. accept or reject depending on the project's payback period. 3 QUESTIONE Click Save and Submit to save and submit. Click Save All Answers to save all answers. E $ 4 Q Search or enter website name R % 5 MacBook Pro T 6 Y & 7 с * 00 8 Save. O

9. Real options Aa Aa Projects are also often embedded with different options that can help making decisions under uncertainty. There are techniques used to evaluate these embedded options which are called real options. The models used to value these options are based on the type of the real option available for the project. True or False: A real option embedded in a capital project gives the investing firm the right and the obligation to buy, sell, or transform an asset at a set price during a specified period of time. False True The managers of Virginia Hydroponics Co. have included an input flexibility option into the design of a proposed capital investment project: I. This option allows a firm to temporarily terminate operations in order to prevent experiencing negative cash flows II. This option allows a firm to postpone a project until it can gather more information or market conditions change. III. This option allows a firm to shut down a project if its cash flows are lower than…

1) What is the company's WACC? 2) Should the company take the projects? Assume that the projects have the same risk as an average project for your firm. 3) If one project is depended on the other in a way that the company can only take both projects, should it take it?

6. Which of the following statements is / are TRUE about the payback period method of investment appraisal? (i) It uses discounted profits (ii) It may result in a project with a negative NPV being accepted (iii) It looks at the whole life of the project (iv) It favours lower risk projects (on the basis that risk is time related) a   (i) and (iii) b   (i) and (iv) c   (ii) and (iv) d   (ii) and (iii)