A firm with a cost of capital of 7 percent is evaluating three independent capital projects. The internal rates of returnare as follows:Internal Rateof ReturnT1%Proj ect2.3.The firm shouldaccept Project 2, and reject Projects 1 and 3O accept Project 1, and reject Projects 2 and 3O accept Project 1 and 2, and reject Project 3O accept Project 3, and reject Projects 1 and 2

Internal Rate of Return: The internal rate of return (IRR) is a financial research indicator that is…

A firm with a cost of capital of 7 percent is evaluating three independent capital projects. The internal rates of return are as follows: Internal Rate Project of Returm The firm should, accept Project 2, and reject Projects 1 and 3 accept Project 1, and reject Projects 2 and 3 accept Project 1 and 2, and reject Project 3 accept Project 3, and reject Projects 1 and 2

A firm with a cost of capital of 7 percent is evaluating three independent capital projects. The internal rates of return are as follows: Internal Rate Project of Returm The firm should, accept Project 2, and reject Projects 1 and 3 accept Project 1, and reject Projects 2 and 3 accept Project 1 and 2, and reject Project 3 accept Project 3, and reject Projects 1 and 2

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

For a capital investment project to be acceptable, it must generate a rate of return A) Less than the required rate of returnB) Equal to or greater than the cost of capitalC) equal to the initial investmentD) none of the above
For the following two projects, which statement is correct. Year 0 1 2 Playhouse -30 16 23 Fort -80 45 48 O choose Fort when the cost of capital is 4% O choose Fort because its IRR is higher choose Fort when the cost of capital is 6% O choose Playhouse because its IRR is higher
The capital budgeting decision that requires a choice between two decisions is a(n) _______ project. Independent Dependent Mutually exclusive Inclusive The actual value that a firm loses when it makes a capital budgeting decision is a(n) ______ cost Fixed Opportunity Sample Unknown The number of years required for an investment to return the monies invested is known as a projects Economic life Usage rate Capital decision Payback period The future benefits received from investing in a project are the projects Net cash flows Net investment Net cost Net return The capital components included in a firms weighted cost of capital are Common stock Debt Retained earnings All of the above Weaknesses in using solely the payback method as a measure of a projects risk include Not accounting for the time value of money There is no objective criterion for deciding what is an acceptable payback period Cash flows that occur after the payback period have no impact on the…
Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of return Beta, b Risk-free asset 9% 0.00 Market portfolio 14% 1.00 Project 1.74 a. Calculate the required rate of return for the project, given its level of nondiversifiable risk. b. Calculate the risk premium for the project, given its level of nondiverisifiable risk.
Please describe NPV, IRR and their relationship. How do you evaluate each for making an investment decision? That is, what is a favorable NPV and IRR for making an investment decision. If you were developing a capital budgeting process at your employer, how would you prioritize your projects? What is the NPV when IRR = WACC, IRR>WACC, and IRR<WACC? There is a duplex for sale in Absecon for $700,000 at this time. It has 2 units that generate a total of $25,000 in gross rent. The property taxes are $4,000, commercial property insurance is $2,000, flood insurance is $1,000, and annual maintenance is $2,000. You expect to sell it in one year at a price growth of 0%. What is the NPV with a WACC of 10%. Is the IRR greater or less than the WACC? Would you invest in this project and why?
Use the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. QUESTION) Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places). INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000 Additional informationThe discount rate used by the company is 12%. Transcribed Image Text:Number of Periods 1 2 3 4 5 6 7 8 m 10 11 12 13 14 15 1% 2% 0.9901 0.9804 0.9709 3% 3.9020 3.8077…
QUANTITATIVE. Fill in the following statements based on the below project financial analysis. a. The Net Present Value is b. The Return on Investment is c. The project will break even (make back its costs) in Year d. This project Created by: Praju Manageski Note: Change the inputs, such as discount rate, number of years, costs, and benefits. Be sure to Discount rate Costs Discount factor Discounted costs Benefits Discount factor Discounted benefits profitable because the ROI and NPV are both Financial Analysis for Project GGU Assume the project is completed in Year 0 Discounted benefits -costs Cumulative benefits - costs ROI 5% 10,000 1.00 10,000 0 1.00 0 (10,000) (10,000) 16% 0 0.95 2,000 0.95 1,905 Year 0 0.91 5000 0.91 4,535 1,905 4,535 (8,095) (3,560) 0 0.86 . 6000 0.86 5,183 5,183 1,623 10,000 11,623 1,623 NPV
8. Modified Internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 -200,000 425,000 475,000
Select all that are true with respect to the payback period for making capital investment decisions. Group of answer choices The payback period is the amount of time it takes for a project to generate breakeven income The payback period is the amount of time it takes for a project's cumulative cash flows to become zero The payback period ignores all cash flows beyond a specified required payback period The payback period ignores a project's initial investment The payback period ignores the time value of money
1. Which of the following should be included in the initial outlay? A. Purchase price of new equipmentB. Increased working capital requirementsC. Pre-existing firm overhead reallocated to the new projectD. A and B above 2. Which of the following is NOT included in the calculation of the initial outlay for a capitalbudget? A. Additional working-capital investmentsB. Training expensesC. InstallationD. All is included in the initial outlay 3. Dividend policy is influenced by: A. a firm's capital structure mix.B. a company's investment opportunities.C. a company's availability of internally generated funds.D. all of the above. 4.Which of the following dividend policies will cause dividends per share to fluctuate themost? A. Stable dollar dividendB. Constant dividend payout ratioC. Small, low, regular dividend plus a year-end extraD. No difference between the various dividend policies 5.Which of the following statements would be consistent with the bird-in-the-hand dividendtheory? A.…