28) ABC Corporation is concerned that the following project has some problem with IRR. Year 2 3 4 5 6 7 CF_Project 700 -150-120-100 -90 300 700 800 How many discount rates produce a zero NPV for this project? A) One, a discount rate of 0% B) One, a discount rate of 36% C) One, a discount rate of 69% D) Two, discount rates of 0% and 36% E) Two, discount rates of 0% and 69% F) Two, discount rates of 36% and 69% G) None H) None of the above 0 1
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
![28)
ABC Corporation is concerned that the following project has some problem with IRR.
Year
0
1
2
4
5
-150-120
CF_Project 700
-100-90
How many discount rates produce a zero NPV for this project?
A) One, a discount rate of 0%
B) One, a discount rate of 36%
C) One, a discount rate of 69%
D) Two, discount rates of 0% and 36%
E) Two, discount rates of 0% and 69%
F) Two, discount rates of 36% and 69%
G) None
H) None of the above
29) ABC Corporation is considering an investment of $400 million with expected after-tax cash inflows
of $102 million per year for seven years. The required rate of return is 10%. However, there is a
possibility that the project will not get the required level of investments and ABC Corporation will
have no other choice but to proceed with available funding (90% of the required investments). In
this case, the after-tax cash inflows of $91,8 million per year are expected for seven years.
As a result, on the NPV profile of a project:
A) the vertical intercept shifts up and the horizontal intercept shifts left
B) the vertical intercept shifts up and the horizontal intercept does not shift
C) the vertical intercept shifts up and the horizontal intercept shifts right
D) the vertical intercept shifts down and the horizontal intercept does not shift
E) the vertical intercept shifts down and the horizontal intercept shifts left
F) the vertical intercept shifts down and the horizontal intercept shifts right
G) the vertical intercept does not shift and the horizontal intercept does not shift
30) Consider the two projects below. The cash flows as well as the NPV and IRR for the two projects
are given. For both projects, the required rate of return is 10%. What discount rate would result in
the same NPV for both projects?
Year
0
1
-1000 250.
-1000 0
CF_Project 1
CF_Project 2
A) 19.87%
B) 16.37%
C) 15.02%
D) 13.16%
E) None of the above.
2
250
0
3
250
300 700 800
0
4 5 6
300
700
300
0
7
300 400
800 1500
NPV
387,50
655,96
IRR
20,13%
19,36%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F793b6aff-f148-4523-8250-7b38a941d7e6%2Fcff763c7-6d11-4e89-ac74-a18b95090330%2Fcz6h6q_processed.jpeg&w=3840&q=75)
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