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Ch. 9 Practice

Ch. 9 Practice - FIN 3100 Chapter 9 Practice Dr Lucy Ackert...

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FIN 3100 Chapter 9 Practice Dr. Lucy Ackert 1. A project provides cash inflows of $760 each year for eight years. What is the payback period if the cost is $3,400? Or the cost is $4,450? Or the cost is $6,800? 2. Ski Express is trying to choose between two mutually exclusive projects with the following cash flows: Year Project A Project B 0 -45,000 -20,000 1 17,000 6,000 2 20,000 13,000 3 24,000 9,000 a. If the required return is 11 percent and the profitability index is used, which project will the firm accept? b. If the firm uses the NPV decision rule, which project should it take? c. Why do you think the answers above are different? 3. Paradise Beach Resorts has gathered projected cash flows for two new developments. The company is indifferent between the two projects at a discount rate of 9.65%. Which project is better if the required return is above this rate? Year Project X Project Y 0 -150,000 -150,000 1 65,000 41,000 2 52,000 48,000 3 49,000 64,000 4 43,000 63,000
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4. Your firm is considering two projects with the following cash flows: Year Project A Project B 0 -200 -150 1 200 50 2 800 100
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