A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of P1,000,000; the firm's cost of capital is 15 percent. Project Initial investment P200,000 400,000 250,000 200,000 150,000 400 000 IRR 19% 17 16 12 20 NPV P100,000 20,000 60,000 -5,000 50,000 150 000 2 3 4 15

A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of P1,000,000; the firm's cost of capital is 15 percent. Project Initial investment P200,000 400,000 250,000 200,000 150,000 400 000 IRR 19% 17 16 12 20 NPV P100,000 20,000 60,000 -5,000 50,000 150 000 2 3 4 15

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Using the NPV index approach to ranking projects, which projects should the firm accept?

A. 1, 6, 5 and 3

B. 1, 2, 3, and 5

C. 2, 3, 4, and 6

D. 1, 3, 4, and 6

A firm must choose from six capital budgeting proposals outlined below. The firm is
subject to capital rationing and has a capital budget of P1,000,000; the firm's cost of
capital is 15 percent.
Project
Initial investment
P200,000
400,000
250,000
200,000
150,000
400,000
IRR
19%
17
16
12
NPV
P100,000
20,000
60,000
-5,000
50,000
150,000
3.
4
20
6.
15

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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