Второст Investment NI'V A 135,000 6,000 B 200,000 30,000 C 125,000 20,000 D 150,000 2,000 JE 175,000 10,000 F 75,000 10,000 G 80,000 9,000 H 200,000 20,000 50,000 4,000 Assuming that your capital is constrained, which investment tool should you use to determine the correct investment decisions? OA. profitability Index OB. incremental IRR OC. internal rate of return (IRR) OD. net present value (NPV)

Второст Investment NI'V A 135,000 6,000 B 200,000 30,000 C 125,000 20,000 D 150,000 2,000 JE 175,000 10,000 F 75,000 10,000 G 80,000 9,000 H 200,000 20,000 50,000 4,000 Assuming that your capital is constrained, which investment tool should you use to determine the correct investment decisions? OA. profitability Index OB. incremental IRR OC. internal rate of return (IRR) OD. net present value (NPV)

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 2MCQ: To make a capital investment decision, a manager must a. estimate the quantity and timing of cash...

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Defining capital investment terms Fill in each statement with the appropriate capital investment analysis method: Payback, ARR, NPV, or IRR. Some statements may have more than one answer. __________ is(are) more appropriate for long-term investments. __________ highlights risky investments. ____________ shows the effect of the investment on the company’s accrual-based income. ___________ is the interest rate that makes the NPV of an investment equal to zero. __________ requires management to identify the discount rate when used. _________ provides management with information on how fast the cash invested will be recouped ___________ is the rate of return, using discounted cash flows, a company can expect to earn by investing in the asset. __________ does not consider the asset’s profitability __________ uses accrual accounting rather than net cash inflows in its computation.
Question Content Area Which of the following is a method of analyzing capital investment proposals that ignores present value? a. average rate of return b. net present value c. discounted cash flow d. internal rate of return
This is a multiple choice question.
1. The payback criterion for capital investment decisionsa. is conceptually superior to the IRR criterion b. takes into consideration the time value of money c. gives priority to rapid recovery of cash d. emphasizes the most profitable projects
Current Attempt in Progress Describe how investing in more than one asset can reduce risk through diversification. B I U T₂ T² T = = || E
Questions How would you assess the evolution of the capital structure of LGI? Reflecting on your work in Project 1, would you consider the risk exposure under control? If not, what are your recommendations? [insert your answer here] What kind of information do you find valuable in CAPM to guide you in assessing the risk of LGI compared to other firms and the market in general? [insert your answer here] 3. Identify and differentiate the stakeholders of LGI and explain how each one should perceive and weigh the risk and/or return of the firm. [insert your answer here] Would you consider the investment made in Project 4 optimally financed considering the proportion of debt that is bearable by LGI? How did the current WACC in Project 5 depart from the state of the firm in Project 1? [insert your answer here] 1.If you had to advise a potential investor interested in having a minority stake in LGI, what kind of information would you provide to help the…
iw) What does it mean for projects to be mutually exclusive? How should managers rank mutually exclusive projects? B. What are the strength and weaknesses of each of the following capital budgeting technique below? i. Payback i. ARR i. Profitability Index iv. IRR
Which asset would the risk-averse financial manager prefer? (See below.) Asset Initial investment Annual rate of return Pessimistic Most likely Optimistic O A. Asset D OB. Asset A OC. Asset C OD. Asset B A $15,000 8% 12% 14% B $15,000 5% 12% 13% C $15,000 13% 12% 15% D $15,000 7% 12% 14%
Select all that are true with respect to the Cost of Capital. Group of answer choices The cost of capital is the discount rate to use when evaluating investment opportunities There is one cost of capital for every firm, and that one rate should be used for evaluating all investment opportunities The cost of capital for an asset is driven by an asset's riskiness The cost of capital is driven by how we raise funds to pay for an investment opportunity The cost of capital for a project is driven by the systematic risk of that project When estimating the cost of capital for a project, it is the total risk of that project that matters
Which of the following methods for evaluating capital investment proposals reduces the expected future net cash flows originating from the proposals to their present values and computes a net present value? a. average rate of return b. net present value c. internal rate of return d. cash payback
Manipulating CAPM Use the basic equation for the capital asset priding model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.63 when the risk-tree rate and market return are 5% and 13%, respectively b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%. C. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%. d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market retum are 6% and 9.7%, respectively a. The required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively, is % (Round to two decimal places.)
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