Question 1

An approach to capital rationing that involves graphing project returns in descending order against the total dollar investment to determine the group of acceptable projects is called the ________.

Accepted Answer

The answer of An approach to capital rationing that involves...

Question 2

A firm is evaluating two mutually exclusive projects that have unequal lives.The firm must evaluate the projects using the annualized net present value approach and recommend which project they should select.The firm's cost of capital has been determined to be 18 percent,and the projects have the following initial investments and cash flows:

Accepted Answer

The answer of A firm is evaluating two mutually exclusive...

Question 3

Table 11.11
Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, A and B. The relevant cash flows for each project are given in the table below. The cost of capital for use in evaluating each of these equally risky projects is 10 percent. 
-The annualized NPV of Project B is ________.(See Table 11.11)

Accepted Answer

The answer of Table 11.11
Yong Importers, an Asian import company,...

Question 4

Table 11.11
Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, A and B. The relevant cash flows for each project are given in the table below. The cost of capital for use in evaluating each of these equally risky projects is 10 percent. 
-Which project should be chosen using the Annualized NPV approach? (See Table 11.11)

Accepted Answer

The answer of Table 11.11
Yong Importers, an Asian import company,...

Question 5

Table 11.11
Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, A and B. The relevant cash flows for each project are given in the table below. The cost of capital for use in evaluating each of these equally risky projects is 10 percent. 
-Which project should be chosen on the basis of the normal NPV approach? (See Table 11.11)

Accepted Answer

The NPV of Project A is $9,544.46 and the NPV of Project B is $11,860.95. Therefore, Project B should be chosen based on the normal NPV approach.

Question 6

Table 11.11
Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, A and B. The relevant cash flows for each project are given in the table below. The cost of capital for use in evaluating each of these equally risky projects is 10 percent. 
-The annualized NPV of Project A is ________.(See Table 11.11)

Accepted Answer

To calculate the annualized NPV for each project, we need to use the formula: PVIFA = (1 - (1 / (1+r)^n)) / r

For Project A, the PV of cash inflows is $40,000, and the PV of cash outflows is $26,614. Therefore, the initial investment is $26,614 - $40,000 = -$13,386.

Next, we need to calculate the number of years for the project, which is 4.

Using the formula above, we can calculate the PVIFA as follows:

PVIFA = (1 - (1 / (1+0.1)^4)) / 0.1 = 2.7753

Finally, we can calculate the annualized NPV for Project A as follows:

Annualized NPV = -$13,386 * 2.7753 + $40,000 = $22,674

Therefore, the best choice is to choose Project A as it has a higher annualized NPV compared to Project B.

Question 7

Table 11.11
Yong Importers, an Asian import company, is evaluating two mutually exclusive projects, A and B. The relevant cash flows for each project are given in the table below. The cost of capital for use in evaluating each of these equally risky projects is 10 percent. 
-The NPVs of Projects A and B are ________.(See Table 11.11)

Accepted Answer

We calculate the NPV of Project A as follows:
NPV(A) = -150,000 + (45,000/1.1) + (50,000/1.1^2) + (60,000/1.1^3) + (65,000/1.1^4) + (70,000/1.1^5)
NPV(A) = $56,386
We calculate the NPV of Project B as follows:
NPV(B) = -175,000 + (50,000/1.1) + (60,000/1.1^2) + (70,000/1.1^3) + (80,000/1.1^4) + (650,000/1.1^5)
NPV(B) = $95,066
Since both projects are mutually exclusive, we would choose the project with the higher NPV, which is Project B. Therefore, the best choice is B.

Question 8

A firm is evaluating two mutually exclusive projects that have unequal lives.The firm must evaluate the projects using the annualized net present value approach and recommend which project they should select.The firm's cost of capital has been determined to be 14 percent,and the projects have the following initial investments and cash flows:

Accepted Answer

The answer of A firm is evaluating two mutually exclusive...

Quiz 11: Capital Budgeting Cash Flows and Risk Refinements

An approach to capital rationing that involves graphing project returns in descending order against the total dollar investment to determine the group of acceptable projects is called the ________.